Kenanga maintained its “outperform” recommendation on UZMA stock with an unchanged target price of 64 sen. PETALING JAYA: Uzma Bhd’s recent contract extension from Petronas Carigali Sdn Bhd is a positive signal of more jobs for the oil and gas service provider. The company had secured a two-year contract renewal, valued at RM200mil, with Petronas Carigali for the provision of coiled tubing and services. “We are positive on the extension, showcasing the client’s reliance on Uzma’s services, and bringing its order book to RM1.5bil. “Moving forward, the group is confident of further job wins coming from its bid-book of RM1.5bil, ” Kenanga Research said in a report. The research house expected the extension to fetch gross margins of roughly 30%-35%, in line with the group’s average, as well as with the original contract. Kenanga said the group has submitted a bid-book of another RM1.5bil and management is targeting for its bid-book to grow to RM2.9bil. “We are encouraged by this, as this signals the presence of opportunities despite the challenging environment. “Of the submitted bids, management guides that roughly half have a 70% chance or better at winning, displaying its confidence in further contract wins to come, ” the research house said. Kenanga maintained its “outperform” recommendation on stock with an unchanged target price of 64 sen. It also maintained its forecast on FY21-22E earnings as its assumptions have already more than encompassed this contract extension, with an assumption of RM500mil order-book replenishment for FY21 “Our ‘outperform’ call is premised on Uzma’s recovery play. Being an integral upstream services provider, any factors leading to an increase in oil demand, such as positive news flow on Covid-19 vaccine developments, will bode well for the stock’s trading sentiment, ” it said. However, it added that there were still risks to its recommendation including lower-than-expected margins for its jobs, slower-than-expected order book replenishment and cost overruns.
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