PETALING JAYA: Diversifying into renewable energy (RE) and technology is Uzma Bhd’s way of keeping its revenue streams intact as the global trend in energy transition is to move away from fossil fuels.
Uzma, an oil and gas (O&G) services and equipment company, has made some headway with some contract wins in the solar business, digitalisation and aviation/aerospace products and services.
The diversification into RE is timely and gaining traction, said TA Research.
The company was recently awarded the 50MW solar photovoltaic plant by the Energy Commission for the large-scale solar phase 4 (LSS4) Mentari programme.
In addition, the other non-O&G projects secured recently by Uzma include works on geothermal power plants in the Philippines and Indonesia, and satellite communication services. The group targets non-O&G revenues to contribute 40% of topline by 2025.
Currently, O&G upstream projects comprise 79% of group revenue while RE is less than 1%, TA said. Based on its preliminary assumptions, it expects a full-year contribution of RM10mil upon project completion in financial year 2025 (FY25) from LSS4.
This implies a projected internal rate of return of 8% and net present value per share of 20 sen. The research house has re-rated Uzma’s forward price to earnings ratio valuation upwards to 10 times from 9 times previously. This is given a smoother earnings profile from its new LSS4 project, it added.
With that, the target price of Uzma has been raised to 82 sen from 74 sen previously. It has also upgraded Uzma to a “hold’’ from a “sell’’ previously. While it believes Uzma’s successful bid for LSS4 is aptly priced-in, TA said its diversification into the non-O&G sector may lead to execution and funding risks. This is given a lack of track record, coupled with a smallish and stretched balance sheet with net gearing of 1.2 times, the research house added.