This article first appeared in The Edge Financial Daily on May 2, 2018
Uzma Bhd
(April 27, RM1.35)
Maintain outperform with a target price (TP) of RM1.88: Uzma Bhd announced that it had been awarded an umbrella contract by Petronas Carigali Sdn Bhd (PCSB) for the period over two years. While there is no firm value and details for the job scope, we are positive on this development as it evidences Uzma’s upbeat outlook, on the back of the rise in commodity prices above US$60 (RM237) per barrel levels over the past nine months, leading to capex spending by oil majors. We reiterate our “outperform” call on the stock with an unchanged TP of RM1.88 based on 10 times price-earnings multiple.
Similar to other umbrella contracts, this contract does not constitute a commitment to any specific work and it is depending on work orders basis to be issued to Uzma from time to time at the discretion of PCSB. As such, there is no firm value for the contract. Nonetheless, based on the management’s estimate, the contract could roughly be around RM60 million to RM80 million over the two-year primary period.
Although value of the contract could vary over time, it should, however, contribute positively to the group’s earnings. We have already presumed the umbrella contract as part of our order book replenishment projection, hence no change to our financial year ended 2018 (FY18) to FY20F earnings forecast.
Uzma’s earnings outlook is expected to remain sturdy as it is supported by RM1.4 billion confirmed order book and estimated RM400 million from umbrella contracts. These should provide earnings visibility for the next three years.
This is the seventh contract the group has secured thus far this year, indicating an improvement in oilfield activities. Uzma is still actively bidding numerous projects with a combined value of RM7.3 billion. Therefore, we believe the flow of contracts should continue going forward. — PublicInvest Research, April 30.