Positive on Uzma’s new contract from Petronas
KUALA LUMPUR: Analysts are positive on Uzma Bhd (Uzma) procuring another contract this year.
This came after Uzma received a letter of award from Petronas Carigali for the provision of a portable water injection module (PWIM) for the Sepat platform.
The scope of the contract includes design, engineering, procurement, fabrication, installation, hook-up, commissioning, operating and maintenance of the PWIM at the Sepat platform.
The contract will expire 30 months after first water injection, and carries a value of approximately RM27 million over the contract period.
The research firm with Kenanga Investment Bank Bhd (Kenanga Research) was positive on the contract award, especially considering the current challenging backdrop plaguing the oil and gas sector, with Petronas having recently announced a cut in capex and opex budget.
“Nonetheless, this also demonstrates Petronas’ reliance on Uzma’s expertise,” it said in a note yesterday.
The award is the company’s sixth publically announced contract win in FY20, bringing year to date firm-value wins to about RM199 million.
“However, considering the smallish value of the contract, it would be largely inconsequential to the company’s total order-book of about RM2 billion,” Kenanga Research said. “We expect the contract to fetch roughly 30 per cent gross margins, in-line with company’s average.”
This led Kenanga Research to maintain a market perform call on Uzma, with unchanged target price of RM0.67 per share.
It also made no changes to its FY20-21E forecast numbers for the time being, considering the smallish size of the contract.
“Keen investors should be wary of the upcoming weaker results, given operational disruption led by the Covid-19 and lower oil prices, and thus should adopt a nimble trading strategy or be prepared to weather through a period of volatility,” it warned.
Separately, Public Investment Bank Bhd (PublicInvest Research) recapped that Uzma has secured five contracts within a few months starting March 2020, which demonstrates its ability in replenish its orderbook consistently while ensuring its earnings visibility in the coming years.
“With a value of RM27 million and conservative five per cent net profit margin, this award is expected to contribute RM1.35 million to the bottom-line, spread over two years. Uzma’s outstanding orderbook currently stands at circa RM2 billion.
“The planned cuts in capex and opex by oil majors given the low oil price conditions are a concern.
“Nevertheless, we are of the view that the impact to Uzma is manageable as compared to its peers given the variability of services offered.
“We applaud this new contract as Uzma has proven to be one of the very few brownfield service providers that continue to actively secure contracts amid a shaky operating environment.
“While ensuring the Group’s earnings visibility until FY23, we keep our forecasts unchanged nonetheless as we account for this as orderbook replenishment, while maintaining a conservative stance on earnings given the downside risks in the sector.”
PublicInvest Research retained its trading buy call and target price of of RM0.76 per share for Uzma.