Uzma gets a lift from Rm40mil Sarawak Shell deal

PETALING JAYA: Uzma Bhd’s contract win worth about Rm40mil from Sarawak Shell Bhd is positive as it reflects the rise in job flows for the oil and gas sector.

However, translating its current order book into earnings delivery is key for a re-rating catalyst, said Kenanga Research.

Uzma recently announced that its 70%owned subsidiary Malaysian Energy Chemical & Services Sdn Bhd was awarded a contract from Sarawak Shell for the provision of kinetic hydrate inhibitor, corrosion inhibitor and associated services for the Shell Timi field.

The duration of the contract is five years, effective Jan 2023 to 2028.

“Overall, we are positive on the contract award as it demonstrates Uzma’s ability to continue winning jobs within the brownfield services space amidst the current elevated oil price environment.

“Nonetheless, the contract is rather smallish in size – making up only some 2% of its current order book of about Rm2bil (of which roughly half is derived from umbrella contracts),” said Kenanga Research in a report.

The research firm expects the job to fetch gross margins of around 40% to 45%, which is in line with the group’s historical average. But given the smallish size of the contract, Kenanga Research had made no changes to its financial year 2023 and 2024 forecast earnings.

“We continue to like Uzma for being a beneficiary of increased brownfield oil and gas activities, providing a wide range of services such as production enhancement and optimisation, as well as late-life operation and maintenance.

“However, given the recent rally in its share price, we believe these positives have been well priced in. Additionally, we believe it is crucial for the company to successfully materialise its current healthy order book into bottom-line earnings to meet profit growth expectations in order to serve as another re-rating catalyst,” added Kenanga Research.

The research firm maintains its 67 sen target price, but has downgraded the stock to a “market perform”.