AmInvest Research Reports

DELEUM - MCM Contract Win From Petronas

AmInvest
Publish date: Tue, 11 Jun 2024, 10:27 AM
AmInvest
0 9,040
An official blog in I3investor to publish research reports provided by AmInvest research team.

All materials published here are prepared by AmInvest. For latest offers on AmInvest trading products and news, please refer to: https://www.aminvest.com/eng/Pages/home.aspx

Tel: +603 2036 1800 / +603 2032 2888
Fax: +603 2031 5210
Email: enquiries@aminvest.com

Office Hours
Monday to Thursday: 8:45am – 5:45pm
Friday: 8:45am – 5:00pm
(GMT +08:00 Malaysia)

Investment Highlights

  • We reiterate BUY call on Deleum with a higher fair value (F of RM1.70/share (from RM1.66/share previously), pegged to FY24F PE of 12x – at parity to Malaysian oil and gas operator average. Our FV implies an unchanged neutral 3-star ES rating .
  • The higher FV is attributable to stronger earnings contributio from the integrated corrosion solutions (ICS) segment from higher-than-expected contract win. Similarly, we tweake FY24F earnings by +3% to account for the revision.
  • Deleum has secured a contract from Petronas for the provisio of offshore, maintenance, construction and modificatio (MCM) services for the Peninsular Malaysia Assets (Ga Package) for a sum of RM105mil.
  • Works for the package commenced on 16 May and is expecte to complete by 31 Dec 2024.
  • Though the impact is minimal, we are positive on th development as the contract win indicates that Deleu remains a beneficiary of the local O&G capex upcycle. Reca that the segment has experienced operating losses sinc 2QFY23, as orderbook shrank considerably with th suspension of its anti-corrosion solutions license wi Petronas.
  • Due to an expected increase in operating costs includin startup costs, high material costs and the current lack manpower supply, we impute a minor operating margin of 10 which will translate into slight operating profits vs. breakeve levels previously.
  • Though the contract period is short, we gather from th grapevine that a renewal cycle for Petronas’ MCM work scop is due by 4QFY234, as many contractors are expected to se completion of their respective contracts after a slew extensions made in 2023.
  • With this, we estimate the group’s orderbook at RM650m RM700mil with visibility up to 1 year while its tender boo remains elevated at RM1.2bil-RM1.3bil.
  • We continue to like Deleum and see it as one of our to conviction calls within the small to mid-cap space, given i niche and asset-light business model. We gather that th group is well positioned within the industry as one of the mo preferred contractors within the power & machineries scen and the leading provider of slickline services.
  • Stripping out the group’s net cash of RM214mil (37% of current market cap), Deleum currently trades at a highly compelling bargain FY24F P/E of only 6x, half of the local contractors’ average while offering attractive dividend yields of 5%.

Source: AmInvest Research - 11 Jun 2024

Related Stocks
Discussions
Be the first to like this. Showing 0 of 0 comments

Post a Comment