KUALA LUMPUR: Kenanga research maintained its underperform call on Uzma Bhd
with a lower target price of 61 sen from 69 sen previously as it remained cautious over the quality of the group's earnings delivery.
"While there were some positive takeaways (e.g. LSS3 bids and other upcoming projects) and the clarity regarding the high costs incurred in 3Q19, we still see little visibility in earnings," said the research house.
In its recently released earnings result, Uzma posted 3Q19 core losses of RM4.9mil due to unusually high operating costs.
Revenue grew 21% yer-on-year due to full consolidation of Setegap Ventures Petroleume after completion of its acquisition in January.
Kenanga said the high operating costs were due to a combination of various "one-offs".
"These included accounting treatments (i.e. from under-recognition of costs in the prior periods), book-keeping errors, D18-related costs (downtime, and finalisation of closed discussion), new project start-up costs, as well as costs related to the Setegap Ventures Petroleum consolidation," it said.
However, the research house noted the company is in the midst of tendering for several Large Scale Solar 3 bids at varying equity stakes ranging from 40% to 80%.
"We reckon these projects to fetch IRR of around ~10%. And while no tender values were being disclosed, based on our back-of-envelope assumptions, we guesstimate UZMA to be bidding roughly ~RM200- 300m worth of tenders for LSS3," said Kenanga.
It added that Setegap Ventures Petroleum is expected to contribute about RM900mil additional order book, of which about 60% are firmed value.
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