Uzma’s oilfield services to face margin pressure amidst sector-wide slowdown, analysts observe
KUALA LUMPUR: Uzma Bhd’s (Uzma) oilfield services will likely continue to face margin pressure amidst the sector-wide slowdown, analysts say.
Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a recent report, said it cut its financial year 2016 estimated (FY16E) forecast by 3.4 per cent to RM56.4 million assuming lower margin from Drilling and Well Services (DWS) segment, and lower contribution from manpower business in view of margin compression risk to persist.
Nevertheless, it upgraded the stock to ‘market perform’, noting that the price correction in the past three months has adequately priced in the earnings risk.
Meanwhile, the research team said it expected Uzma’s D18 water injection facility project revenue to kick in by the second quarter of 2016 (2Q16), the earliest, should the mobilisation and hook-up & commissioning ( HUC) works come through, smoothly.
To recap, the project will require initial capital expenditure (capex) of US$65 million to US$70 million and is estimated to generate a daily income of RM200,000 for five years.
“As the income is denominated in ringgit, the profitability of the project is reduced owing to the weakening of ringgit against US dollar from the tender and negotiation period to contract award date.
“Hence, Uzma is trying to negotiate with Petronas to revise the daily income to factor in currency rate differential,” Kenanga Research added.
On Uzma’s risk service contracts ( RSC) at the Tanjong Baram offshore Sarawak, the research team noted that according to Petronas’s announcement in January this year, the Tanjong Baram oil field has started oil production on August 18, 2015 and is estimated to produce an average of 2,000bbl/day.
“We are guided that earnings contribution will only come in 1Q16 once billing is done. Meanwhile, we believe the estimated capex reimbursement period is prolonged to more than three years but still sufficient to cover the loan repayment at this oil price level,” it added.
Aside from that, Kenanga Research noted that Uzma’s management had guided that the geoscience and petroleum engineering (GPE) segment performed better than expected in FY15 as compared to the previous downcycle back in 2008.
“This is largely attributable to clients continuing their brownfield reservoir studies so that they are ready to proceed to development phase once the oil prices recover to an economically feasible level,” the research team said.
On the flipside, being one of the professional manpower suppliers, Uzma experienced significantly slowdown in this business division given that most firms, especially in the exploration and development segment are trimming their workforce to be more cost effective, it pointed out.
Kenanga Research also noted that Uzma is looking to supply three additional UZMAPRES (an idle well revival solution through pressure reduction) with some modifications in order to enhance the well production at a lower cost at earliest in 2H16.
“Currently, there are 10 units of UZMAPRES and all of them are contracted out. We have yet to factor this into our current forecasts as we deem discussion is still at preliminary stage. Should the company succeed in bagging new contracts, we estimate each additional UZMAPRES unit could at least contribute a monthly income of RM500,000,” it commented.