Uzma benefiting from current energy upcycle

PETALING JAYA: Kenanga Research is upbeat about Uzma Bhd’s near-term prospects as the group is a beneficiary of the current upcycle in upstream activities that is set to lead to increased oil and gas contract flows.

Following a recent results briefing, the brokerage firm said the oil and gas service and equipment group is well poised for more job wins from a sizable bid book.

“The group’s new plug and abandonment (P&A) and workover contracts enjoy more favourable terms than a previous umbrella contract.

“We also understand that there has been positive feedback from its clients on its deepwater-oilfield chemicals.” Kenanga Research said in a note to clients yesterday.

Some of the key takeaways from the briefing include the P&A and workover contracts, which are housed within the upstream oil and gas segment.

The brokerage firm noted Uzma’s management explained that the better contract terms led to improved earnings before interest and taxes margins back in the first quarter of financial year 2024 (1Q24).

“We anticipate this positive trend to persist over the next two years, driven by an expected substantial increase in demand for upstream well services,” added Kenanga Research.

Furthermore, Uzwa received positive feedback from its clients on the effective performance of its chemicals, given the stringent requirements for deepwater applications.

Its chemical subsidiary, Malaysian Energy Chemical & Services Sdn Bhd recently reclaimed its position as the leading player in the local oilfield-chemicals business by securing a RM120mil contract for three to five years for deepwater operations with Shell.

Kenanga Research pointed out that Uzma’s order book stands at RM2.4bil, with new energy projects, primarily solar-power purchase agreements, representing 33% of that value. Meanwhile, the group’s well and production solutions in the upstream oil and gas segment account for 39% and 28%, respectively.

“The substantial bid book at RM2.3bil signals increased wins for the group in FY24, with an expectation that the majority will be in the upstream oil and gas segment, “ it said.

According to Kenanga Research, Uzma’s new energy division is in an early growth stage and anticipated to expand as the group gains more experience.

The brokerage firm has maintained its forecast on Uzma with an “outperform” call at a target price of RM1.22 a share.

This is pegged to an unchanged FY25 10 times price-to-earnings ratio (PER), which is consistent with the average PER for small to mid-cap upstream services players, it added.

Kenanga Research also likes Uzma’s active thrust into sustainable businesses via its new-energy segment which enhances the group’s environmental, social and governance appeal and helps future-proof its earnings.

In addition, the looming launch of its 50 megawatt large-scale solar plant will boost Uzma’s recurring income, it noted. However, the risks to Kenanga Research’s call include a premature end to the industry upcycle following a dip in oil prices, poor project execution in the new-energy division leading to cost overruns and delays and operating-expenditure pressure emanating from an inflationary environment, particularly on expenses for manpower and materials.