New technology likely to boost Uzma profit from FY19

This article first appeared in The Edge Financial Daily, on July 27, 2018.
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Uzma Bhd
(July 26, RM1.06)
Maintain outpeform with an unchanged target price of RM1.27:
The group has been awarded an umbrella contract by Petronas Carigali Sdn Bhd for provision of drilling fluids and associated services for Petroleum Arrangement Contractors.

The duration of the contract will be five years starting from May 30, 2018. Similar to other umbrella contracts, the details of works for this contract remain unknown and are dependent on work orders to be issued from time to time by Petronas. Hence, there is no firm value for this contract.

We are not surprised with this contract, given Uzma’s track record of consistent delivery, and account for it as part of our order book replenishment assumptions. Hence, no change to our earnings estimates.

We foresee the profit margin for this job scope (that is drilling fluids) to be favourable as growing exploration and production activities will lead to higher demand of drilling fluids-related works.

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

Uzma’s activities are expected to pick up in line with stable industry outlook, reaffirmed by a slew of new awards which the group has secured to date in 2018.

New catalyst for the group should include its new technology on non-metallic pipe which is expected to boost the group’s revenue and earnings stream from FY19. We note that there are about 40% of pipes in local oilfields aged more than 30 years, which will eventually need to be replaced in order to avoid leakages. — PublicInvest Research, July 26