UZMA has secured a contract for a water injection facility (WIF) project from HIBISCUS, expected to commence at the earliest in 1QFY26. We estimate the contract, spanning over five years, to contribute about RM10m PAT annually (which we have already imputed in our general assumption). We maintain our forecasts, TP of RM1.45 and OUTPERFORM call.

UZMA has been awarded a contract by HIBISCS for the lease of a Water Injection Facility (WIF) for the SF30 waterflood phase 2. The contract spans five years, starting from the WIF's final acceptance date. With a construction and delivery timeline of 15 months, the earliest operational start is anticipated in 1QFY26. While the contract value has not been disclosed, a previous similar project for the D18 field was valued at RM400m, providing a potential benchmark.

Assuming a conservative net margin of 10%, we estimate that this project could contribute up to RM9m in PAT annually to the group. With this contract, the group's total wins for FY24 has cumulatively reached approximately RM700m, which is 70% of our order book replenishment assumption. Given the group's successful execution of the D18 project previously, project execution for this new contract is not anticipated to be a concern.

Forecasts. Maintained.

Valuations. We maintain our TP at RM1.45 pegged to an unchanged CY25F 10x PER, which is consistent with the average PER for small to mid-cap 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).

Investment case. We like UZMA due to: (i) it being a beneficiary of the current upcycle in upstream activities leading to increased O&G contract flows, (ii) its active thrust into sustainable businesses via its new energy segment which enhances UZMA’s ESG appeal and help future proof its earnings, and (iii) the looming launch of its large-scale solar plant that will boost its recurring income. 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 - 1 Mar 2024