Uzma Berhad - Extension contract worth RM27.5m

News   Yesterday, Uzma Bhd (“UZMA”) announced that its subsidiary company, Malaysian Energy Chemicals & Services Sdn Bhd ("MECAS") had received an extension contract from ExxonMobil Exploration and Production Malaysia (“EMEPMI”). 

The said contract worth RM27.5m, is for the provision of production and integrity chemicals for an extension period of one year (starting 1^st  June 2012 to 31^st  May 2013) with an extension option thereafter of one year (1^st  June 2013 to 31^st  May 2014). 

Hence,  the  contract  is  valued  at  RM55m  in  total for a 2-year tenure.

Comments  We are positive on this announcement as this extended contract from EMEPMI showed that MECAS’ expertise and capability are acknowledged by it existing clients. 

With an annual revenue recognition of RM27.5m, this contract forms part of the replenishment contract for the company’s order book, which is currently at c.RM1.0b.

Assuming the contract is extended for a 2-year period and a thin net margin of 5%, we are anticipating a decent net contribution of RM2.7m a year from this contract, or RM5.5m for two years.

As such, we are expecting the net profit contributions from this contract to be RM1.38m in FY12E, RM2.75m in FY13E and RM1.38m in FY14E. 

However, we have already factored this into our estimates as part of our assumed annual order book replenishment of RM150m. 

Outlook  We remain optimistic on the company as UZMA continues to be actively engaged in the domestic Oil & Gas production through the provision of its value-added services.

UZMA is expected to announce its 2Q12 results tomorrow after the market close. The quarter results are set to be better than 1Q12 as its 6^th unit of UzmAPRES has been deployed in 2Q12.

Forecast  We are keeping our FY12-14E net earnings unchanged at RM22.3m-RM34.0m. 

Rating  Maintain OUTPERFORM

Valuation   We are reiterating our OUTPERFORM call with the target price unchanged at RM1.70, based on 7.5x its FY13E EPS of 22.7 sen. 

Risks  Declining global crude oil price trend that will discourage O&G activities.

Source: Kenanga