New opportunities for Uzma within the LNG space, broadening its earnings base by building a ‘healthy revenue mix’

by NUR HAZIQAH A MALEK / pic source: twitter

UZMA Bhd is expected to perform well this year following its announcement to import liquefied natural gas (LNG) for the regasification and distribution of LNG within the country by the Energy Commission through its wholly-owned subsidiary.

According to Public Investment Bank Bhd’s research note recently, the development provides new opportunities for Uzma within the LNG space, while showcasing its effort in making its five-year plan come true and broadening its earnings base by building a “healthy revenue mix”.

“No change to our financial years 2021 to 2023 (FY21-FY23) earnings forecast pending further guidance by the management.

“Uzma’s upstream oil and gas (O&G) business is still intact, with recovery in oil prices and improving sentiment likely to result in more work orders coming back onstream,” the bank stated in a note recently.

The group’s five-year plan incorporates two key strategic themes, ensuring that assets invested in offer the best return on capital and rebalancing its portfolio between project-based revenue and long- term recurring revenue stream.

The second strategic theme defines its venture into high potential new growth areas, refocusing its efforts on a more balanced portfolio with 60% business in O&G and 40% in new growth areas such as new energy, digitalisation and technology.

Kenanga Research analyst Steven Chan also noted that while the research house is still unable to ascertain the immediate earnings impact to Uzma, it is positive on the development which allows the group to tap into the growing LNG market.

“Demand for gas has been steadily increasing, as it is seen as a cleaner energy source compared to crude oil or coal.

“In Malaysia, LNG imports are expected to grow by more than one million tonnes annually to reach 4.8 million tonnes by 2022 — doubling within a two-year period, according to Independent Commodity Intelligence Services,” he said.

Chan said the move will also provide a new source of earnings, as well as diversification further downstream within the O&G value chain.

“Risks to our call include lower than expected margins, slower than expected order book replenishment and cost overruns,” he said.

In contrast, Kenanga’s target price for the group stands at 80 sen from the previous 72 sen.

“No changes to our FY21-FY22E numbers for now, pending results release later this month. Still our top ‘trading’ pick within the sector as a recovery play,” he said.

In a filing to Bursa Malaysia recently, Uzma said the licences granted to Uzma Engineering Sdn Bhd allows the company to import LNG into a regasification terminal into or within Malaysia by any means aside from transhipment, while also distributing natural gas via regasification terminal or pipelines to consumer premises.

Its group CEO Datuk Kamarul Redzuan Muhamed (picture) said the group is excited to embark on the new opportunity within the LNG space and to play a role in ensuring the country’s energy needs are met.

“These licences will enable Uzma Group to continue supporting the Malaysian energy sector and diversify our business further downstream,” he said in a statement.

For its first quarter ended Sept 30, 2020, the group’s net profit stood at RM1.65 million versus the previous year’s RM9.43 million, while its revenue was also lower at RM99.61 million to the previous RM133.8 million on lower and delayed activities from the pandemic.

In the group’s annual report for 2020, Kamarul said the group has a healthy, orderbook for its future prospects, which currently stands at RM1.5 billion, and a big book of over 40 projects worth RM1.45 billion, inclusive of its projects in four Asean countries.