Earnings outlook for Uzma seen to remain intact

This article first appeared in The Edge Financial Daily, on August 9, 2018.
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Uzma Bhd
(Aug 8, RM1.14)
Reaffirm outperform with a target price (TP) of RM1.27:
The group has been awarded an umbrella contract by Petronas Carigali Sdn Bhd for provision of Well Abandonment Integrated Services for Pulai-A.

We note that this contract will be covering 22 firm wells. The value for this contract remains unknown as it is depending on work orders to be issued from time to time by Petronas.

Nevertheless, from our channel checks on several companies’ announcements, we estimate that this project could be worth around RM100 million and is expected to be completed in a year.

We are pleased with this announcement as it demonstrates the group’s ability in replenishing its order book consistently, backed by its strong position as a brownfield service provider.

However, our forecast is maintained as we already assume it in our order book replenishment assumption for financial year 2019 (FY19).

Uzma earnings’ outlook remains intact backed by i) its healthy outstanding order book in hand of about RM1.8 billion, ii) stable gross profit margins at above 30% level, and iii) active tender book of around RM5 billion.

New catalyst for the group should include its non-metallic pipe which is expected to boost the group’s revenue stream from FY19. There are about 40% of pipes in local oilfields aged more than 30 years old and will eventually need to be replaced in order to avoid leakages.

Our “outperform” call on the group is reaffirmed with expectation on its earnings outlook to remain intact — to be supported by its RM1.8 billion balance order book in hand and improving profit margins. We maintain our TP of RM1.27 based on a 10 times price- earnings multiple over FY19 forecasted earnings per share of 12.7 sen. — PublicInvest Research, Aug 8