Uzma Bhd is poised for more job wins on a sizeable bid book, as there has been positive feedback from its clients on its deep water oilfield chemicals, according to Kenanga Research.
Therefore, the research house maintains its OUTPERFORM call, its earnings forecasts, and TP at RM1.22 pegged to an unchanged FY25F 10x
PER, which is consistent with the average PER for small to mid-cap upstream services players, with no adjustment to 3-star ESG rating.
Meanwhile, in its Company Update, Kenanga said the group’s new new plug & abandonment (P&A) and work-over contracts enjoy more favourable terms than the previous umbrella contract.
“The (P&A) and workover contracts, housed within the upstream Oil & Gas (O&G) segment, feature improved terms compared to the
previous umbrella contract.
“Management explained that the better contract terms led to improved EBIT margins back in 1QFY24. We anticipate this positive trend to persist over the next two years, driven by an expected substantial increase in demand for upstream well services,” it said today (Dec 5), post-briefing with Uzma.
As mentioned, the group has been receiving positive feedback on its deep water chemicals.
“We understand Uzma’s clients have expressed satisfaction with the effective performance of the chemicals, a notable achievement given the stringent requirements for deep water applications.
“Notably, its chemical subsidiary, Mecas, recently reclaimed its position as the leading player in Malaysia’s oilfield chemical business by securing RM120 million contract, with the duration of three to five years for deep water operations with Shell,” Kenanga added.
The research house also highlighted that the group’s order book stands at RM2.4 billion, with new energy projects, primarily solar power purchase agreements (PPA), representing 33%.
“Well and production solutions in the upstream O&G segment account for 39% and 28%, respectively. The substantial bid book at RM2.3 billion signals increased wins for the group in FY24, with an expectation that the majority will be in the upstream O&G segment.
“Meanwhile, the new energy division is in its early growth stage and anticipated to expand as the group gains more experience.
It favours Uzma for being a beneficiary of the current upcycle in upstream activities leading to increased O&G contract flows, its active thrust into sustainable businesses and the looming launch of its 50MW large scale solar plant that will boost its recurring income.
The risks to Kenanga’s call include a premature end to industry upcycle, poor project execution on new energy division leading to cost overruns and delays, and opex pressure emanating from an inflationary environment.
