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Uzma Bhd
(Jan 19, RM1.86)
Maintain outperform with a target price (TP) of RM2.02:
Last Friday, Uzma Bhd  announced that it had secured a contract for the provision of through tubing downside tools and services from Petroliam Nasional Bhd (Petronas).

The contract period will last for two years effective from Jan 1, 2015 to Dec 31, 2016 with an extension option of one year. The value of the contract is estimated at RM50 million.

“Positive” on the win as it is another service that Uzma can render within the well maintenance segment, and to none other than Petronas Carigali Sdn Bhd.

While the project timeline is uncertain (within the two years), the management guides that the risk of such projects being uneconomical will only be if crude oil price dips further below US$25 (RM89) to US$30 per barrel. Hence, should Brent crude oil prices stabilise at US$50 per barrel, work will continue.

Uzma’s business could slow down in financial year 2015 (FY15), given Petronas’ potential operating expenditure cuts (on top of capital expenditure announced previously).

However, we are banking on Uzma’s innovative and entrepreneurial spirit to keep earnings growth intact.

Drilling for its risk sharing contract (RSC) is still expected within the first quarter of 2015. Uzma’s order book stood at RM1.8 billion (as at end-2014) while bids are at RM2.8 billion.

We maintain our forecasts for now but will closely monitor earnings trend for FY15.

Our TP is maintained at RM2.02 pegged to nine times FY15 forward price-earnings ratio (PER), which is in-line with small-cap oil and gas (O&G) peers’ valuations.

Given that Uzma’s share price has fallen significantly in the past few months, we believe value is emerging with its forward FY15 PER at 7.7 times, implying that the market might had been overly pessimistic about the stock.

Risks are lower-than-expected margins and O&G activities, delay in first-oil of the RSC and a no-go for its MMSVS Group Holding Co Ltd acquisition.— Kenanga Investment Bank Bhd, Jan 19

Uzma_20Jan15_theedgemarkets

This article first appeared in The Edge Financial Daily, on January 20, 2015.

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