Thursday 28 Mar 2024
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Uzma Bhd
(July 13, RM2.43)
Maintain market perform with an unchanged target price of RM2.58:
Last Friday, Uzma Bhd announced that it had been awarded a contract for leasing, operation and maintenance of the D18 water injection facility from Petronas Carigali Sdn Bhd.  The duration of the contract is for five years, effective from March 31, 2016, with a contract value ranging between RM350 million and RM400 million. 

This was expected as it had been eyeing this contract for quite some time. To note, the group had earlier proposed a private placement of 21.6 million shares representing about 8% of its issued and paid-up capital. We believe the exercise is the prerequisite for the group to secure this water injection job to fund capital expenditure for the assets required for the execution of the job. 

A job win under the current low oil price scenario is always a positive, and it is also a milestone for the company, as this is the first full-fledged water injection facility contract secured by the group, which is unprecedented for local oil and gas players. This showcases its ability to encroach into the territory of the industry usually dominated by the likes of Schlumberger Ltd and Halliburton Co. 

It will also provide recurring earnings for the group to cushion the volatility of its other income streams, with expected RM70 million to RM80 million top line and RM10.5 million to RM12 million earnings before interest and tax (Ebit), assuming a 15% Ebit margin in line with its existing business.

The group’s prospects remain intact despite low oil prices due to the maintenance nature of most of its services. Year-to-date, it has secured RM325.5 million worth of projects relating to oilfield intervention and support services. This shows that oilfields still require maintenance activities, namely well interventions and inspection to maintain oil production, amid yearly natural production decline. 

MMSVS Group Holdings Co Ltd, Thai-based hydraulic workover unit  subsidiary, is expected to experience high growth in the coming years upon Uzma’s acquisition, thus enabling it to ride Uzma’s business network in Southeast Asia to capture a bigger slice of the oilfield workover market in the region. It will also bring an additional dimension to Uzma’s oilfield services business segment, making Uzma a one-stop oilfield services provider in Malaysia. — Kenanga Research, July 13

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This article first appeared in The Edge Financial Daily, on July 14, 2015.

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