KUALA LUMPUR (June 24): Kenanga Research is positive on the news that Uzma Bhd’s unit has secured a RM27 million contract from Petronas Carigali Sdn Bhd.
Kenanga Research analyst Steven Chan said in a note today he was positive on the contract award, especially considering the current challenging backdrop plaguing the oil and gas sector, with Petronas having recently announced a cut in its capital expenditure and operating expenditure budget.
Nonetheless, this also demonstrated Petronas’ reliance on Uzma’s expertise, he noted.
In a filing with Bursa Malaysia yesterday, Uzma said its wholly-owned subsidiary Uzma Engineering Sdn Bhd had secured a contract for the provision of a portable water injection module that involves design, engineering, procurement, fabrication, installation, hook-up, commissioning, operation and maintenance for the Sepat platform.
Chan said the award is the company’s sixth publicly announced contract win in the financial year ending June 30, 2020 (FY20), bringing its year-to-date wins to RM199 million.
“However, considering the smallish value of the contract, it would be largely inconsequential to the company’s total order book of about RM2 billion. We expect the contract to fetch roughly a 30% gross margin (in line with the company's average),” said Chan.
Chan maintained his "market perform" rating for Uzma at 62 sen with an unchanged target price (TP) of 67 sen, pegged at 0.4 times FY21E price-to-book value at -1.5SD (standard deviation) below the five-year mean.
“[There are] no changes to our FY20-21E numbers for the time being, considering the smallish size of the contract.
“Keen investors should be wary of the upcoming weaker results, given the operational disruption led by Covid-19 and lower oil prices, and thus should adopt a nimble trading strategy or be prepared to weather through a period of volatility.
Chan mentioned that risks to his call include lower-than-expected margins and slower-than-expected order book recognition.
At 11.30am, shares in Uzma were half a sen or 0.81% higher at 62.5 sen, valuing the group at RM200.2 million. It saw some 3.76 million shares traded.