Stripping-out unrealized foreign exchange (FX) gains amounting to RM2.4m, Uzma reported core net profit of RM7m (+>100% YoY, -10.2% QoQ) in 1QFY20, maintaining its previous quarter’s work momentum albeit on slightly lower billings and profit margin. Stronger YoY performance was mainly due to lower revenue achieved in 1QFY19, dragged by the downtime in two key earnings contributors – D18 water injection facility and advanced production enhancement system UzmAPRESS. The results are above our projections though in line with consensus, accounting for 38.5% and 26.9% of full-year estimates respectively. We revise our FY20-22 forecasts higher by an average of 33.8%, with profitability anticipated to remain stable as the D18 is now running at full capacity as well as higher activities from the Hydraulic Workover Unit and other Integrated Well Services (IWS) divisions. Our TP is raised to of RM0.95 (RM0.57 previously) based on an unchanged PE multiple of 10x, though tagged to a rolled-over and higher FY21 EPS. We raise our call to Trading Buy on expectation of positive reaction to these encouraging developments.

• Strong YoY performance. Uzma’s 1QFY20 core net profit of RM7m surged by >100% on the back of a 52.9% increase in revenue. The performance has already been anticipated given the low base in 1QFY19 due to the downtime in two key earnings contributors – D18 water injection facility and advanced production enhancement system UzmAPRESS, as well as higher operating cost. The performance has also been supported by the contribution from the IWS segment post consolidation of Setegap Ventures (SVP) after the acquisition of a further 15% stake to 64%. Gross profit margin improved 3.3ppt YoY to 38.7%.

• Slightly lower QoQ however, with core net profit down by 10.2%. This is on the back of lower revenue of 3.7% as slower progress billings recognized from the IWS segment saw revenue dropping 21.6%. The shortfall has been moderated by strong contributions from the production segment which was up by 32.9% however. Moving forward, we expect Uzma’s IWS contributions to be stronger, particularly from the Pulai A field, various Hydraulic Workover Unit (HWU) projects in Malaysia, Thailand and China as well as from SVP. Orderbook stands at c. RM1.1bn, with about RM770m in firm contracts and the remaining from umbrella contracts.

Source: PublicInvest Research - 28 Nov 2019