• 1QFY25 results missed our and consensus expectations

• Earnings declined on lower production enhancement activities and weaker-thanexpected margins

• Cut FY25–27E EPS forecasts by 13-15%. Maintain BUY rating with lower TP of RM1.45 after rolling forward our valuation

Below Expectations

Uzma recorded higher 1QFY25 revenue of RM208m (+38% YoY) on a stronger trading segment, partly supported by additional contributions from gasoil shipments, which were absent in 1QFY24. Notwithstanding, EBITDA margin fell 11ppts to 14% due to a shift in revenue mix towards the lower-margin trading segment. The O&G segment revenue declined 30% YoY to RM98m due to a reduction in executed production enhancement work. In tandem with the lower margins, core net profit came in lower at RM10m (-28% YoY), representing 16% and 20% of our, and consensus estimates. Overall results missed our expectations, with deviation coming from weaker-than-expected margins.

Weaker Sequential Earnings

1QFY25 revenue grew marginally by 2% QoQ to RM208m, driven by higher trading segment (+167% QoQ), but weighed down by weaker O&G segment (-40% QoQ) contribution. We gather that Uzma faced delays in its production enhancement work, resulting in reduced O&G activities during the quarter. EBITDA margin declined 5ppts to 14% due to revenue mix weighted towards lower-margin trading business. As a result, core net profit weakened to RM10m (-38% QoQ). Despite the slow start, we expect the remaining quarters to see a stronger ramp-up in O&G activities. The 50MW LSS4 project commenced operation in late Sept24 and should see a full quarter contribution from 2QFY25 onwards.

Maintain BUY But Lower TP to RM1.45

We cut our FY25–27E forecasts by 13-15% after lowering our project margin assumptions, partly offset by a reduced effective tax rate. We reiterate our BUY rating but lower our 12- month target price to RM1.45 (from RM1.78) after rolling forward our valuation year to FY26E, based on a lower 10x PE multiple (from 12x). Uzma is trading at forward 6x FY26 PER, which we see as attractive in terms of valuation. Key risks to our BUY call include lower-thanexpected work orders, unforeseen project delays, and higher-than-expected project execution costs.

Source: Phillip Capital Research - 21 Nov 2024