Uzma’s contract with ExxonMobil to generate more earnings

by AZALEA AZUAR / pic by TMR FILE

UZMA Bhd’s new contract award from ExxonMobil Exploration and Production Malaysia Inc is expected to develop the group as it affirms its upbeat outlook as a brownfield service provider, in an environment of stronger crude oil prices.

Public Investment Bank Bhd analyst Nurzulaikha Azali noted that the contract is for a provision of electric wireline logging equipment and services (non-rig assisted) for a period of two years.

“Outstanding orderbook remains healthy at more than RM2 billion with earnings visibility up to financial year 2024 (FY24).

“We maintain our earnings forecast, having assumed this contract as part of our replenishment assumption in FY22,” she wrote in a research report on Uzma yesterday.

The investment bank has maintained Uzma’s target price of 73 sen (based on its 10 times price-to-earnings over calendar year 2022 earnings per share) and ‘Outperform’ rating on the company.

“We view this contract positively as it will strengthen Uzma’s core upstream services particularly in well servicing systems.

“With this contract, Uzma’s outstanding orderbook for the oil and gas segment is expected to remain healthy at RM2 billion (inclusive of work orders from umbrella contracts), translating to about five times of FY21 revenue,” added Nurzulaikha.

With crude oil prices above US$90 (RM377.10) per barrel, the analyst said it would benefit major oil companies including Uzma as many would spend more in a sizable way.

However, Nurzulaikah warned that the spike in Covid-19 cases could lead to stricter standard operating procedures, causing a limit in its operational efficiency.

The contract works are expected to commence on Jan 13, 2022, until Jan 12, 2024, and consists of non-rig assisted electric wireline logging equipment and services at West Malaysia waters including technical consultancy and provision of electric-line unit, logging services, tractoring, perforation interchangeable between different conveyances.

The contract does not constitute a commitment for any specific work, and depends on work orders to be issued to Uzma from time to time.

“As such, there is no firm value for the contract. Nonetheless, our channel checks suggest that the contract could roughly be around RM40 million to RM50 million over the two-year period,” she wrote.

The contract is expected to contribute around RM2.2 million to RM2.8 million to the group’s earnings over the period between FY22 and FY24 with a blended net profit margin of 5.6%.