Uzma Bhd ( Valuation: 0.50, Fundamental: 0.55)
(Jan 15, RM1.74)
Maintain add with a lower target price of RM2.32: We met with Uzma Bhd’s management recently. Its Tanjung Baram risk service contract (RSC) project is engaged in full production and its D18 water injection facility (WIF) is expected to commence operations in the second quarter of 2016 (2QFY16). However, the prolonged low oil price has led to a slowdown in activity in the oil and gas industry. This has also affected Uzma.
Consistent with Petroliam Nasional Bhd’s announcement on Jan 6, oil production from the Tanjong Baram field commenced on Aug 18, 2015. This field produces an average of 2,000 barrels of oil per day. The field is operated under a RSC with EQ Petroleum Developments Malaysia Sdn Bhd as its operator, in partnership with Uzma. Uzma is set to enjoy full-year contributions from the project in FY16.
Uzma’s D18 WIF project is progressing well. It is scheduled to commence operations in 2QFY16, with a RM200,000 daily rate for the next five years. The development costs are within budget at about US$65 million (RM288 million). We expect the project to contribute positively to Uzma’s revenue and earnings despite a weaker ringgit against the US dollar.
Uzma’s order book now stands at about RM2 billion. But Uzma is not immune to the prolonged depressed crude oil price and muted oilfield service activity level. Although we believe that production levels in brownfields should remain stable, cost-cutting measures by Uzma’s clients would mean that some of the oilfield service works would be deferred.
We believe that Uzma is better positioned than most of its peers to weather the industry slowdown. Only 10% to 15% of its revenue is directly exposed to the exploration stage via its geoscience and petroleum engineering division. Most of its exposure is to brownfield oilfield maintenance services.
We cut FY16 to FY17 earnings per share forecasts by 10% to 25% to reflect the slowdown in oilfield service activities, which will lead to deferment in revenue, but we increase our margin assumption due to higher margin contributions from RSC remuneration fees.
We maintain “add”. Potential rerating catalysts are full production in its Tanjung Baram project and commencement of the D18 WIF project. — CIMB Research, Jan 14
UZMA (7250) - Uzma expected to weather industry slowdown
http://www.theedgemarkets.com/my/article/uzma-expected-weather-industry-slowdown
UZMA, UZMA (7250), 7250, EN7250, KLSE:UZMA, Investing, CIMB Research,
