Uzma reported a core net profit of RM14.3m in 1QFY24, higher by 4.8% YoY but lower by 8.7% QoQ. Nevertheless, Uzma recorded a notably higher revenue of RM151.2m for the quarter, a level not seen since 4QFY20. The increase in revenue is attributed to contribution from the oil and gas (O&G) segment, particularly its hydraulic workover units (HWU) and coiled tubing services (CTU). The result also meets our estimates at 25% of full-year numbers, but exceeds consensus at 33%. We remain upbeat on Uzma’s prospects on the back of its RM2.4bn orderbook, with 66% in the O&G segment. Additionally, management believes the worst is over for Malaysia Energy Chemical and Services (MECAS) and should see revenue contributions from the chemical business rebound to pre-pandemic levels. On a separate note, Uzma could be the frontrunner for the upcoming long-term plug and abandonment (P&A) contracts to be opened for tender in 1H2024. We maintain our Outperform call and TP of RM1.20, pegged to 8x FY24 EPS.

• Highest revenue in 13 quarters. Uzma recorded a revenue of RM151.2m in 1QFY24, the highest since 4QFY20, attributed to segmental revenue from the O&G segment which recorded RM139.6m, increasing by 41.4% YoY and 44.3% QoQ. To recap in FY2023, Uzma secured RM1bn worth of contracts from PETRONAS Carigali including D18 Water Injection Facility, 2-year extension for Coiled Tubing and two contracts for provision of HWU and P&A. We believe these contracts should sustain Uzma’s revenue at current levels for the next 2-3 years, at least.

• MECAS recovery. Management believes that revenue from oilfield chemical solution (OFC) will recover from stiff competition and is expected to hit at least RM60m next year on the back of its existing long-term contracts (3-5 years) and increasing demand for high-value deepwater chemical. This could materialize as current tenderbook for the OFC market are mostly longer tenured, possibly up to 10 years due to high demand and continuous supply requirements for the chemical.

• Riding on right cycle. We continue to like Uzma for its ability to ride on the right cycle by taking advantage of under-investments in the industry due to extreme volatility since the pandemic. Being an asset owner with the capability to provide innovative bespoke solutions to its clients potentially makes it a frontrunner for key contract awards. Case in point, its lightweight HWU which provides flexibility in pulling capacity and has the ability to be mounted on small offshore platforms with estimated compatibility of wells in Malaysia at about 95%. Clients may also potentially be able to save about 75% chartering costs as compared to jack up rigs.

Source: PublicInvest Research - 23 Nov 2023