Positive on Uzma’s contract extension from Petronas Carigali

KUCHING: Analysts are positive on Uzma Bhd (Uzma) being awarded a contract from Petronas Carigali for the provision of leasing, operation and maintenance of the D18 Water Injection Facility for a period of five years until October 2027.

Kenanga Investment Bank Bhd (Kenanga Research) was positive on the contract win, with this being one of UZMA’s more prominent contracts within its order book.

“This new contract is effectively an extension of an existing contract, continuing the operations of the D18 Water Injection Facility which has been in the same location since July 2016,” it commented.

“While no contract values were disclosed, based on the job scope, we estimate the contract to be worth about RM300 million. We expect the contract to fetch about 40 per cent gross margins (in line with its historical average), which implies an average gross profit contribution per year of RM24m.”

“Overall, we are positive on the contract win, with this being one of Uzma’s more prominent jobs within its portfolio. We believe the extension contract also reflects the client’s satisfaction with Uzma’s job execution capabilities thus far.

“We expect this job to lift its order book to an estimated RM2 billion -- of which RM1 billion is expected to be from umbrella contracts.”

All in, Kenanga Research made no changes to its FY23 and FY24 earnings for Uzma, as the research house has already assumed a continuation of the existing job in their numbers.

“Maintain outperform, with a higher target price of RM0.64 (from RM0.58 previously), as we switched our valuation methodology to 10 times price earnings ratio previously) – based on a 33 per cent discount on valuations ascribed on other local-centric oil and gas equipment and service provider peers such as Dayang and Velesto, given Uzma’s far smaller market cap.

“There is no adjustment to the target price based on ESG given a 3-star rating as appraised by us.

“We like Uzma for it being a good proxy to elevated oil prices given its focus in the brownfield segment, providing a wide range of services such as well services, oil production enhancement and optimisation, as well as late-life operation and maintenance, and its diversification into the solar energy space which will help future-proof its longer-term prospects.”