Uzma beefing up war chest for expansion

by **Cals** Thu 20 Mar 2014, 18:44

Business & Markets 2014

Written by HLIB Research

Thursday, 20 March 2014 10:49

Uzma Bhd
(March 19, RM6.10)
Maintain hold with target price of RM6.16: Uzma will propose a renounceable rights issue of up to 132 million rights shares on the basis of 1 rights share for every 1 existing share. The rights issue price is 75 sen per share, representing a 77% discount to the theoretical ex-rights price (TERP) of RM3.26. The proposals are expected to be completed by the fourth quarter of 2014.

We are positive on this exercise as it will strengthen the balance sheet, finance the company’s expansion plan and improve liquidity.

Overall, its financial year 2015 ending Dec 31 (FY15) earnings per share (EPS) will be diluted by 45% from 38.5 sen per share to 21 sen per share.

This exercise is expected to raise up to RM90 million. Uzma’s net cash position will increase from RM3.5 million to RM93.5 million, thus beefing up its war chest for expansion.

We conservatively do not include a potential risk sharing contract (RSC) award in our forecasts. Any marginal field contract win will rerate the stock and transform the company into an exploration and production (E&P) player.

Uzma’s latest order book of RM1.6 billion (about four times FY13 revenue) and tender book of RM2.6 billion are expected to sustain earning growth going forward.

Risks are delays in contract disbursement and execution risk. Forecasts are unchanged, pending conclusion of the rights issue and/or securing new special projects.

The positives are its direct exposure to enhanced oil recovery and exploration spending and room to grow.

We maintain our “hold” call with unchanged target price of RM6.16 based on 16 times FY15 EPS and 38.5 sen per share. Post the exercise, the ex-share price and ex-target price will be adjusted to RM3.26 and RM 3.48 respectively. — HLIB Research, March 19

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This article first appeared in The Edge Financial Daily, on March 20, 2014.