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This article first appeared in The Edge Financial Daily on March 18, 2019

Uzma Bhd
(March 15, RM1.07)
Maintain outperform with a target price(TP) of RM1.12:
Uzma reported that its 95% sub-subsidiary, Cougar Drilling Solutions Indonesia (PT CDSI), had been awarded a contract for the provision of directional drilling services by Pertamina Hulu Energi Onshore North West Java (PHE ONWJ).

 

Though specific details and value were not disclosed as the contract depends on work orders to be issued to PT CDSI from time to time at the discretion of PHE ONWJ, we are positive on this development as it signifies the group’s ability in securing new contracts, not only in Malaysia but also in the region.

We keep our forecast unchanged nonetheless as we assume this contract is within our job replenishment target for the year.

Uzma’s earnings outlook remains intact on the back of an approximate RM1.2 billion balance order book in hand coupled with its stable profit margins of above 30% at a gross level.

We thus retain our “outperform” rating on Uzma at an unchanged TP of RM1.12 based on a 10 times price earnings multiple to financial year 2020 (forecast) earnings per share of 11.2 sen.

The duration of the contract will be two years starting from Feb 25, 2019 to Feb 25, 2021 with an extension option which is subject to the approval of SKK MIGAS, an institution established by the Indonesian government tasked with managing upstream oil and gas business activities.

The contract does not constitute a commitment to any specific work as it is depending on work orders to be issued to PT CDSI from time to time.

Hence, there is no firm value for this contract. We understand that Uzma will make the required announcement as and when a material sum of the work order is received.

We are not surprised by this contract given Uzma’s capability in securing new contracts, not only in Malaysia but also within the region. Uzma also has a track record of consistent delivery. We have accounted for this contract as part of our order book replenishment assumptions. Hence, no change to our earnings estimates.

Uzma earnings’ outlook remains promising backed by its healthy outstanding order book in hand of about RM1.2 billion, stable gross profit margins above the 30% level; and, an active tender book of around RM3 billion.

Uzma’s activities are expected to pick up in second half of 2019 in line with the stable industry outlook. — PublicInvest Research Bank, March 15

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