Deleum a frontrunner for jobs in Peninsular Malaysian waters
KUCHING: Deleum Bhd (Deleum) is set to be a frontrunner for maintenance, construction and modification (MCM) jobs in Peninsular Malaysian waters, analysts observed.
Earlier this year, it was reported that among the companies shortlisted for portions of Petroliam Nasional Bhd’s (Petronas) RM6 billion MCM contracts include Deleum and Icon Offshore Bhd’s joint venture (JV).
Others were Dayang Enterprise Holdings Bhd, Petra Energy Bhd, Sapura Energy Bhd’s SapuraKencanan Pinewell Sdn Bhd, and Carimin Petroleum Bhd.
The scope encompasses of gas and oil fields within Peninsular Malaysia and East Malaysia’s waters.
With that, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) placed an upbeat view on Deleum, noting that the company’s share price has appreciated by more than 26 per cent over the past two weeks due to strong news flow on the potential MCM contract award.
“While we are cognisant on the strong fundamentals of the company and are still sanguine that Deleum is a frontrunner, we are recommending investors to sell on strength,” it said.
“This is largely due to the fact that earnings accretion from the MCM jobs will most likely be recognised towards the latter part of the financial year 2018 (FY18) only. The bulk of the activity and earnings will most likely take place in FY19,” it explained.
It also pointed out that while there are no official announcements on the award of the contracts, it believed that it could likely be towards 4QFY17.
“Therefore, detailed planning and mobilisation of assets could only happen in 1HFY18 and construction works done in 2HFY18. Earnings could be backend-loaded in FY18,” it said.
Deleum will also partner with Icon Offshore to provide offshore support vessels (OSV) for the works to be undertaken under the MCM contract. Icon Offshore will work under the capacity of a sub-contractor to Deleum.
As at closing, Deleum’s share price was at RM0.945, with 936,400 shares traded.
MIDF Research said, although it recommended an opportunistic ‘trading sell’ at this juncture, it reiterated that Deleum’s company fundamentals and prospects remain intact.
It also maintained its RM0.77 per share target price.
It said, “Investors may consider accumulation the stock on share price retracements to benefit from earnings upcycle in 2HFY18 onwards.
“Our valuation is based on EPS18 of 8.6sen pegged to PER18 of ninefolds. Our target PER18 is premised on the company’s long term historical average rolling PER. At peak valuation, the stock traded at PERs in excess of 18-folds.”
While there are no official announcements on the award of the contracts, it could likely be towards 4QFY17.