This article first appeared in The Edge Financial Daily on March 4, 2020
(March 3, 71.5 sen)
Maintain trading buy with an unchanged target price of 95 sen: Uzma Bhd reported it had secured two contracts from Sarawak Shell Bhd and Sabah Shell Petroleum Company Ltd to provide platform well plugging and abandonment (P&A) for Sarawak in 2020 worth RM100 million, as the project is expected to commence in April 2020 and completed by November this year.
The next project is with Petronas Carigali Sdn Bhd to provide well testing and tubing conveyed perforations for Petroleum Arrangement Contractors (PACs) worth RM36 million. The contract is effective from Jan 15, 2020 and expires on March 31, 2021 or until completion.
We are pleased with this announcement as it demonstrates Uzma’s ability to replenish its order book, backed by its strong position as a brownfield service provider. This also ensures the group’s earnings visibility in the financial year ending June 30, 2020 (FY20) or FY21.
For FY20, these projects are expected to contribute RM51.2 million to Uzma’s top line and RM84.8 million for FY21. Assuming a conservative 5% net margin, profits of RM2.6 million and RM4.2 million will accrue to the group in FY20 and FY21 respectively.
Nonetheless, our forecasts for Uzma are unchanged as we had assumed replenishments to its order book albeit on a smaller scale, through the umbrella contracts. Our conservative stance on earnings are maintained given the current volatile oil prices which could extend the project’s implementation period.
On the company’s outlook, quite a number of oil and gas fields in Malaysia and in the region need decommissioning works as their lifespans will end soon. This includes more than 200 wells already identified to be plugged and abandoned.
In Petroliam Nasional Bhd’s (Petronas) activity outlook for 2020 to 2022, it is targeting 30 wells to be plugged and abandoned in 2020. The figure is expected to increase to 54 in 2021. We believe this will put Uzma in a good position to secure more P&A jobs moving forward. — PublicInvest Research, March 3