(June 26, RM3.72)
Maintain buy with target price of RM4.19: Uzma’s share price went ex for its rights issue on June 24, 2014. To recap, Uzma had proposed a renounceable rights issue of up to 132 million right shares on the basis of one rights share for every one existing share at 75 sen per share.
Thailand-based MMSVS Group Holdings Co Ltd, which Uzma had recently acquired for US$29.7 million (RM95.6 million), will be fully integrated under Uzma by July 2014 following which it will contribute to the group’s revenue.
We expect the acquisition to create synergy value as it will expand Uzma’s product offerings and complement existing services, especially the wireline, sickline, pumping and coil tubing units.
We understand that MMSVS owns a young fleet of hydraulic workover units (HWUs) with an average age of below five years. The HWUs come in a smaller size which makes them suitable for the Southeast Asia region’s shallow water. With the acquisition, we expect MMSVS to expand its HWU services to Malaysia.
As for its Tanjung Baram risk-sharing contract (RSC) with a joint-venture (JV) partner, first oil is anticipated to occur within 11 months which will be around Feb 15. We understand that a substantial portion of the JV’s US$100 million development cost will be contracted to Uzma. We have factored in some sub-contract works worth RM64 million to Uzma in the second half of 2014.
Uzma is also targeting to finalise two additional acquisitions related to chemical and well services this year as we estimate it still has about RM40 million left from the recent proposed rights issue of RM99 million after funding the Tanjung Baram RSC and MMSVS acquisition. Any additional potential merger and acquisition should further enhance our earnings per share (EPS) forecasts.
In addition, Uzma is also exploring growth through the expansion of its product ranges. The new products it is focusing on are water solution, idle well solution, drilling project management and seismic processing. We also do not rule out the possibility of Uzma winning other RSC contracts (potential 14 clusters to be awarded) in future given its experience and knowledge on full field review and reservoir study.
Post-rights issue, we maintain our “buy” call with target price raised from RM3.84 to RM4.19 based on unchanged 16 times higher FY15 EPS of 26.2 sen. — HLIB Research, June 26
This article first appeared in The Edge Financial Daily, on June 27, 2014.