Bullish prospects for Uzma

by **Cals** Mon 19 Aug 2013, 10:20

Bullish prospects for Uzma
Business & Markets 2013
Written by Kenanga IB Research
Monday, 19 August 2013 10:06

UZMA BHD []
(Aug 16, RM4.00)
Maintain outperform at RM4 with a revised target price of RM4.57 (from RM3.64): Uzma's net profit of RM9.1 million for the second quarter ended June 30 of 2013 financial year (2QFY13) brought the first half (1H) of FY13's net profit to RM17.9 million which was within both our (RM36.6 million) and consensus' (RM35.2 million) expectations, accounting for 49% and 50% of the full-year forecasts, respectively.

No dividend was declared as expected.

Quarter-on-quarter (q-o-q), 1QFY13 net profit grew by 2.3%, despite a drop in earnings before interest and tax (ebit) (-11.1%) due to the strong performance of its JCE earnings from Setegap Ventures Petroleum Sdn Bhd and Sazma Aviation Sdn Bhd (which started contributing this quarter).

Ebit was slightly down due to bonuses paid within the quarter, but we expect margins to normalise in subsequent quarters.

Year-on-year (y-o-y), as expected, the net profit growth was significantly higher (+70.6%) due to the stronger revenue (+60.8%) on the back of higher UzmaPres units and the better performance of its GRE, wireline and MECAS services.

A further possible game changer is its successful participation in any of the Chemical Enhanced Oil Recovery projects.

We recently visited Uzma and noted that management seemed bullish on forward prospects given that its wireline and well services, and MECAS divisions are performing well and the eighth UzmaPres unit has already been installed. As such, we reckon that we may have been, again, too conservative in our FY13-FY14 margin and revenue projections.

Main changes to our forecasts are: (i) higher utilisation for UzmaPres and wireline services to 90% (from 80% and 85% previously); and (ii) higher FY13E-FY14E ebit margin assumption for UzmaPres and wireline services to 25% (from 22%). However, we have offset such increases with higher interest costs of RM3.6 million per annum as we note borrowings have increased in the current year.

The above changes lifted our FY13-FY14 net profit projections by 3.6% and 16.1%, respectively from RM36.6 million and RM40 million previously.

As we expect healthy net profit growth and more positive news flow, we are raising our target price-earnings ratio to 13 times (from 12 times previously), raising our target price to RM4.57 from RM3.64 previously.

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Given the 14% upside potential to current share price, we are keeping our "outperform" recommendation. — Kenanga IB Research, Aug 16

This article first appeared in The Edge Financial Daily, on August 19, 2013.