UZMA has secured an extension for a portable water injection module contract for the Sepat platform from Petronas by 20 months. We understand that the terms are largely consistent with the previously expired contract. We maintain our forecasts but upgrade our TP by 8% to RM1.32. Maintain OUTPERFORM.

UZMA has been awarded a term contract by Petronas to provide a Portable Water Injection Module (PWIM) for the Sepat platform. This comprehensive contract encompasses operation and maintenance services, extending beyond the basics including: -

(i) to supply of personnel, consumables, chemicals and spare parts.

(ii) upgrading and modifications of PWIM unit at Sepat A.

(iii) decommissioning of PWIM facilities at Sepat A well-head platform.

(iv) marine spread for demobilisation.

The contract award is an extension of a prior agreement expiring on 11th January 2024, set to last for approximately 20 months. We understand that the extension mirrors the previous terms of the expired contract. This development aligns closely with our initial projections.

Forecast. Maintained.

Valuations. However, we upgrade our TP by 8% to RM1.32 (from RM1.22) pegged to 10x PER after rolling forward our valuation to CY25F from FY25F, consistent with the average PER for small to midcap upstream services players. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). The stock is one of our top picks for the oil & gas sector.

Investment case. We like UZMA due to: (i) it being a beneficiary of the current upcycle in upstream activities leading to an increase in the upstream services contract flows, (ii) its active thrust into sustainable businesses via its new energy segment that enhances UZMA’s ESG appeal, and future proof its earnings, and (iii) the coming launch of its 50MW large scale solar plant that will boost its recurring income and hence an earnings stability anchor. Maintain OUTPERFORM.

Risks to our call include: (i) premature end to industry upcycle following a dip in oil prices, (ii) poor project execution on new energy division leading to cost overruns and delays, and (iii) opex pressure emanating from an inflationary environment, particularly on expenses for manpower and materials.

Source: Kenanga Research - 16 Feb 2024