Uzma Bhd
(June 29, RM2.35)
Maintain outperform with a target price (TP) of RM2.98: Uzma Bhd has proposed a private placement of 21.59 million shares representing 8.01% of the group’s issued and paid-up share capital. 

The majority of the proceeds raised, 68.8%, has been allocated for capital expenditure (capex) to facilitate the expansion of the group’s core businesses. The issue price will be determined and fixed by the board at a later date after receipt of all relevant approvals and is expected to be completed by the fourth quarter ending December of financial year 2015 (FY15). Assuming the last closing price of RM2.52, the placement is expected to raise RM54.4 million. The exercise would increase the group’s share base, so it would have up to 8.01% dilutive effect on the share price, but would strengthen the financial position of the group with an enlarged capital base without incurring interest costs as bank borrowings would. 

We maintain our “outperform” recommendation on Uzma with an unchanged TP of RM2.98 premised on a 15 times price-earnings ratio to our FY16 forecast earnings per share (EPS) of 19.9 sen, pending the issue price of the placement that would correspondingly dilute the EPS. The proposed exercise will provide Uzma with additional capital for its expansion plans while giving it the flexibility of better cash flow management.

The proceeds will be utilised as capex for the expansion of the existing business, repayment of bank overdrafts and working capital after defraying expenses from the exercise. The investment in capex is in line with Uzma’s strategies to grow its core businesses such as drilling, project and oilfield operations services, and wireline services which may include investing in equipment for contracts secured.

Uzma plans to expand its UzmAPRES technology outside of Malaysia to Asia where a commercial model can be followed, thus a different upside from current Petroliam Nasional Bhd structures. As for its drilling well services — with less than 15% of Malaysia’s market share, where the market is estimated to be about RM1 billion per year, the group aims to target about 30% of the market.  

Uzma’s project oilfield and optimisation services division has increased its market share from 27% to 54%. A challenging division as many clients often internalise this aspect of the process. Going forward, Uzma will continue to interject as a solution provider where there is a mismatch of capabilities. — PublicInvestResearch, June 29

This article first appeared in The Edge Financial Daily, on June 30, 2015.