Uzma sees improving prospects on expected rising capex

SEVERAL oil and gas (O&G) service providers on Bursa Malaysia have seen their share prices edge upwards in recent weeks despite the overall sluggish market.

Among them is Uzma Bhd, whose stock has risen by almost 57% since late August this year.

Year to date, the counter has gained about 71%.

According to analysts, the improving sentiment towards Uzma is supported by expectations of higher capital expenditure (capex) spending by global oil majors in the medium term.

The company serves the upstream sector across the exploration, development and production operations as well as the downstream sector in facilities/plant construction, operations and maintenance.

“While Petronas’ capex spending had been slow in the first half of 2019, we expect the second half to see a catch-up in capex spending by the national oil company.

“This will certainly boost sentiment towards several O&G counters,” an analyst with a local bank says.

Last month, Petronas revealed it had spent Rm15.7bil in capex, mainly on upstream projects during the first half of 2019.

The oil giant is expected to spend Rm35bil in capex in the second half of this year.

According to Petronas president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin, the group remains committed to its planned Rm50bil capex spending for 2019 – to be allocated equally between Malaysia and overseas projects.

Last year, Petronas spent Rm46.8bil in capex.

Meanwhile, a broker reckons that Uzma could bag new jobs from Petronas’ accelerated capex spending in the second half.

“The company has a track record in the provisions of O&G services, with specialty in both upstream and downstream activities,” he explains.

In addition, he notes, Uzma’s financial performance has been improving, and the company’s earnings are set to grow, backed by existing and potentially new job flows, in the financial year (FY) ending June 30, 2020.

Hence, the investor interest in the company.

Uzma posted a net profit of Rm29.7mil, or 9.28 sen per share, for FY2019.

That’s an increase of 73% from Rm17.2mil, or 5.54 sen per share, in the preceding year.

Revenue-wise, Uzma saw a growth of 15.5% to Rm443.4mil for FY2019 from Rm384.1mil in FY2018.

Meanwhile, oil output by the Organisation of the Petroleum Exporting Countries, or Opec, fell to an eight-year low last month, following drone attacks on Saudi Arabia’s oil plants.

While Saudi Arabia says the disruption is temporary, and full production recovery after the attacks could be achieved in the near term, there are still lingering concerns over the risk it had posed on Opec oil output.

Nevertheless, many analysts continue to see oil prices being stuck in the US$50S through 2020.

US Energy Information Administration, for instance, expects Brent crude to average at US$59 per barrel in the fourth quarter of this year, and to average at US$59.93 per barrel in 2020.

More optimistic

S&P Global Platts Analytics, however, is more optimistic for the near term, expecting to see Brent Crude ending this year trading at around US$65 to US$70 per barrel.

At an investor briefing last month, Uzma, in guiding for improved prospects, said it was seeing sustained brisk activities in well plug and abandonment (P&A).

Uzma said it was also eyeing the electrical submersible pump (ESP) market in Indonesia, and management would expect potentially better sequential results in the first quarter of FY2020.

In its report on the briefing, TA Research wrote Uzma unveiled that it had recently secured a new five-well contract from Repsol, with a one-plus-one-year tenure.

“For this project, Uzma will deploy one of its hydraulic workover units (HWU)

Additionally, if all goes well, Uzma may secure an additional five wells from Repsol for this 10-well program,” the brokerage said.

“As a reflection of unrelenting demand for P&A, the group is currently tendering for 20 wells at local and international markets,” it added.

TA Research notes that Uzma is also eyeing a new business, namely the provision of ESP in Indonesia, and that the company would commence ESP trials there in the second quarter of FY2020.

“We expect first quarter FY2020 to be largely stable, barring any unforeseen incidents, such as equipment downtime,” it says.

“Earnings will be underpinned by, among others, improved hydraulic workover unit (HWU) fleet utilisation; maiden contribution from Repsol contract; steady contribution from D18 water injection facility contract from Petronas Carigali Sdn Bhd; start of Exxonmobil filtration contract, renewal of China National Offshore Oil Corp four-wells project in Aug 2019; start of the Renewable Thermoplastics contract; and ramp-up of PTT Exploration and Production Public Co Ltd’s HWU contracts,” it adds.

At its close of 98.5 sen yesterday, the company had a market capitalisation of Rm315.2mil.