Uzma Bhd secured a 5-year contract from Hibiscus Petroleum Bhd (Hibiscus) to provide chemicals and related services for a field, which is aligned with Kenanga Research’s assumption of the group securing RM1 billion new orders for its upstream services in FY24.
Consequently, the research house maintained its OUTPERFORM call, its forecasts, and TP of RM1.22 pegged to 10x FY25F price–earnings ratio (PER), 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. The stock is one of our top picks for the oil and gas (O&G) sector,” it said in its Company Update today (Jan 31).
UZMA has secured the contract from Hibiscus for the supply of chemicals and related services for the PM3 field, which is effective from November 2023 to November 2028.
The contract involves the provision of integrated production, integrity, and water injection chemicals, with the contract value dependent on final work orders to be issued by the client.
“For context, in the calendar year 2013, Uzma secured a comparable five-year contract for similar services, provided by Exxon Mobil, with a total value of RM238 million,” Kenanga explained.
The research house said this aligns with its assumption of UZMA securing RM1 billion new orders for its upstream services in FY24.
“The group possess the ability to execute the project given its successful delivery of existing projects, particularly in the challenging deepwater segment.
“We estimate the net margin for the contract to be in the range of 7% and 8%, consistent with the overall performance of the group’s business,” it said.
It added: “We like Uzma due to it being a beneficiary of the current upcycle in upstream activities, its active thrust into sustainable
businesses and the coming launch of its 50MW large scale solar plant that will boost its recurring income and hence anchor earnings stability.
The risks to Kenanga’s call include premature end to industry upcycle following a dip in oil prices, poor project execution on new energy
division leading to cost overruns and delays, and opex pressure emanating from an inflationary environment.
