KUALA LUMPUR (Feb 18): Uzma Bhd's share price climbed to an 11-month high of 76.5 sen this morning following news that the upstream support service provider has been granted two licences by the Energy Commission (EC) to import liquefied natural gas (LNG) into the country.

As at 11am, the counter was trading at 73 sen, up by six sen or nearly 9%. Trading volume soared to 34.9 million shares, evidence of the sudden surge in interest in the oil and gas (O&G) stock today. The counter started the trading day at 69 sen, higher than yesterday’s closing of 67 sen. 

PublicInvest Research commented that the two LNG import licences are expected to fuel fresh earnings growth as they will enable Uzma to establish a foothold in the LNG space. 

Furthermore, the research unit said this showcases the company’s efforts in realising its five-year plan to broaden its earnings base by building a healthy revenue mix. 

According to PublicInvest, Uzma revealed its five-year roadmap in November last year which also included diversification beyond the O&G space. The company has aimed to derive 60% of its revenue from O&G operations, while 40% of its revenue will come from new non-O&G ventures into digital, aerospace, and new energy segments such as geothermal. Uzma has set a five-year revenue target of RM1.5 billion.

PublicInvest, which has an “outperform” call on the stock, expects that Uzma’s revenue and profit recognition from the LNG business could be slightly lower than industry average (net profit of circa 3%) due to the possible discount on the regulated gas price in order to make it competitive as well as a lower profit rate, given that the new business will be in its infancy.

“Uzma's upstream oil and gas business is still intact with recovery in oil prices and improving sentiment likely to result in more work orders coming back on stream,” it added. 

Kenanga Research also views the news as a positive development. As a result, it has raised its target price to 80 sen, from 72 sen previously, with a "buy" recommendation against the backdrop of the rebound on crude oil prices, which are currently hovering around US$60 level. 

Kenanga Research concurs that the LNG import licences will provide a new source of earnings as well as diversification further downstream within the O&G value chain.

“The licences allow Uzma to bring LNG into a regasification terminal in Malaysia and to distribute it under the implementation of the TPA (third party access) system,” Kenanga told its clients in a note this morning.

In Malaysia, LNG imports are expected to grow by more than one million tonnes annually to reach 4.8 million tonnes by 2022 — doubling within a two-year period, according to Independent Commodity Intelligence Services (ICIS).

“Overall, while we are still unable to ascertain the immediate earnings impact to Uzma (dependent on Uzma’s implementation of the licences), we are positive on the development as this allows Uzma to tap into the growing LNG market,” wrote Kenanga Research.