Deleum Bhd
(Nov 18, RM1.81)
Maintain hold with target price of RM1.90: Deleum’s nine-month financial year 2014 ending December (9MFY14) net profit was within our and consensus full year estimates at 76%. The fourth quarter (4Q) is typically weaker than 3Q due to the monsoon season hitting the east coast at year-end, which slows offshore activities. The power and machinery (P&M) segment had a strong showing this quarter, helping to offset some weakness in the oilfield services (OFS) and maintenance, repair and overhaul (MRO) segments.

Deleum has clear earnings visibility given its RM4 billion order book. Key contracts in the order book are long-term service agreements for maintenance and repair of gas turbines, as well as slick line services which have contract lengths of five to 10 years.

While earnings are secure, we do not see exciting news flow for Deleum in the immediate term. The bulk of the group’s long-term service contracts were secured in FY13.

We have a “hold” recommendation on Deleum as dividend yield is attractive at 5% for FY15. Our target price of RM1.90 is pegged to 11 times FY15F price-earnings ratio based on small-cap average valuation.

A slowdown in drilling activity and enhanced oil recovery initiatives could have a slight negative impact on Deleum’s slickline services and well enhancement chemical solutions business. — AllianceDBS Research, Nov 18

This article first appeared in The Edge Financial Daily, on November 19, 2014.