Uzma‟s 1QFY14 revenue registered RM97.7m (+9.9% YoY, -15.3% QoQ), while earnings slipped marginally to RM8.4m (-4.8% YoY, +28.2% QoQ). The increase in revenue is attributed to long term contracts secured by the Group, which we expect would increase further pending the materialisation of Uzma‟s bid book of c.2.8bn. Lower earnings however was due to higher staff costs this quarter as the Group gears up to take on more activities in the 2HFY14. We remain positive on Uzma, driven by its next phase of growth which involves expanding its drilling and well services division, coupled with strategic M&A exercises which would enhance and synergise Uzma‟s core competencies. We are also awaiting potential projects in activities such as chemical enhanced oil recovery (CEOR), brownfield rejuvenation and RSC works. To-date, Uzma‟s secured orderbook is about RM1.8bn, to last until 2017. We are maintaining our Outperform call with TP to RM7.20 premised on 19x PE multiple to our FY15F EPS of 37.9sen.

A reputable player. To recap, Uzma‟s current portfolio consists of various jobs awarded by Petronas, i) to provide well testing equipment and services for Petronas Drilling Programmes – West Region (value – c.RM350m to end March 2017), ii) provision of integrated water injection studies (value – c.RM36m to end May 2016), and iii) the provision of drilling project management team for PMU wells (end September 2014 with an extension option for 1 year). We concede the strength of the Group‟s expertise and capabilities has aided in securing recurring awards from Petronas.

Other ongoing contracts. i) MECAS was awarded a contract by Talisman Malaysia Ltd to supply chemical and related services (value – c.RM62m to end July 2017 with 4 extension option of 1 year), ii) MECAS to provide oilfield chemicals and associated services to ExxonMobil E&P Malaysia Inc. (value – c.RM238m to end March 2018 with extension option of 2years), iii) to carry out development and production of petroleum from the Tanjung Baram Fields RSC which the first oil is expected in 11 months from March FY14, thus we expect the Group to begin recording some contributions for its services for the contract by 2HFY14 with its potential remuneration fee in 2015.

Opportunities. Aside from the Group‟s promising contracts, they will focus on i) expanding its drilling and well services sector, ii) continuing to use its technological expertise to enhance the extraction rate of current 30%-40% oil recovery rate via the UzmAPRES technology.

Source: PublicInvest Research - 27 May 2014