Uzma Bhd
(June 5, RM2.48)
Maintain market outperform with higher target price of RM2.58 from RM2.34: We visited Thailand-based MMSVS Group Holdings Co Ltd, a wholly-owned subsidiary of Uzma, in the Phitsanulok province of Thailand recently to gain a better understanding of its hydraulic workover unit (HWU)’s role and function in the oil and gas industry.

While the HWU is less common in Malaysia, we learnt that it is widely used in Thailand for well intervention and troubleshooting due to its relatively affordable cost. 

The visit made it clearer to us that the acquisition of MMSVS is strategic to Uzma as it provides access to the Southeast Asian (SEA) well maintenance market in the future. 

The Malaysian HWU sector remains largely untapped and the group believes that it could introduce the HWU as a better well maintenance solution to the market, which provides ample long-term opportunities for the group.

Unlike Malaysia, the usage of HWU for the maintenance and production enhancement of oil fields is more common in Thailand as it is regarded as a lower-cost solution for oil operators.

It is used for the snubbing process whereby it is a type of well intervention. Unlike wireline and coiled tubing, the pipe is not spooled off a drum but made up and broken up while running in and pulling out. This is carried out without killing off the well while offering strength and durability.

The HWU is used mainly onshore in Thailand. Currently, most of the HWUs owned by MMSVS are used for onshore oilfields, which are a large market in the country. In Phitsanulok province alone, there are 2,000 onshore wells drilled with field life ranging from 10 to 20 years, which require maintenance to maintain and boost oil production.

To recap, Uzma completed the acquisition of MMSVS for an aggregate consideration of US$29.7 million on July 23 last year. With the acquisition, Uzma aims to penetrate the Southeast Asian offshore market by offering HWUs with higher specifications.

The company will also consider upgrading its current fleet of nine HWUs while standardising its ancillary units to widen its client base and reduce downtime between the mobilisation and demobilisation of assets.

With in-house design and fabrication capability, and technical capabilities from its other divisions, we believe Uzma will be able to tap the Southeast Asian market in the long run while providing ample growth opportunities for the group. — Kenanga IB Research, June 5.

This article first appeared in The Edge Financial Daily, on June 8, 2015.