- Keeping busy. We first looked at Deleum Bhd (DELEUM) as an On Our Radar idea in May 2013. Since then, it had won some major contracts namely; (i) the 5-year Pan Malaysia slickline equipment and services contracts in Jul-13 and (ii) 7+3 year Long-Term Service Agreements for the provision of Turbomachinery maintenance services of gas turbines in Oct-13. It also completed a 1-for-3 bonus issuance and share split in Jun-14 that expanded its share base to 400m shares from 150m shares.

- 2Q14 results review. DELEUM showed positive net profit growth QoQ and YoY (+63% and +16%, respectively) in its 2Q14 results largely on the back of continual deployment of slickline units for the contract won last year as mentioned above. This is on top of the sustained Power & Machinery business and despite some small losses in its competitive Maintenance, Repair and Overhaul business. We expect the positive earnings trend to continue as full mobilisation of slickline units is only expected by 4Q14.

- Expanded 2Q14 orderbook. During its latest briefing, DELEUM guided an order book of RM4.04b (up from the RM3.3b reported in 1Q14). The RM700m uptick is mainly due to oilfield contracts that Deleum managed to garner within the year. We view such wins as testament of Deleum’s growing presence in the Malaysian oilfield space.

- FSO bid; just for the EPCC experience. In Aug-14, news emerged of Deleum bidding to supply a floating, production, storage and offloading (FPSO) unit to the Bergading field project. This was surprising given it has no track record in the conversion and/or the ownership of floating assets. Management shared that it has no intention of owning/leasing the asset at this juncture, capping any potential involvement (in the event of a win) largely to gaining experience within the FPSO engineering, procurement, construction and commissioning (EPCC) space, especially given its intention to grow its Asset Integrated Solutions (A.I.S) services which include consultations that involve Early Production System (EPS) packages.

- No upstream involvement in the near-term. Management shared that a risk-service-contract (RSC) involvement is unlikely in the near future. However, we believe it is keenly eyeing EOR or brownfield opportunities given the segment’s good fit with its current operations in the oilfield services segment.

- Positive forward net profit forecasts. Consensus is projecting FY14-15 net profit growth of 15.0% and 19.3%, respectively, as the market expects the full-contribution of the slickline business from 4Q14 onwards. These earnings growth should translate in FY14-15 EPS of 14.3-17.0 sen.

- Implied 3.2-3.9% dividend yield assuming continual 50% dividend payout. The company has a historical dividend payout of 50%. Assuming this continues, it translates into FY14-15 dividend yield of 3.2-3.9%, respectively.

- Attractive as a TRADING BUY at this level. At the current share price, DELEUM is trading at FY15E PER of 12.9x; attractive for its (i) position in the enviable brownfield oilfield services segment, (iI) positive earnings growth and (iii) satisfactory dividend payout. Assuming a conservative 14x PER (discount of c.6% to our ascribed PER of 16x for UZMA which we accredit a premium for its higher involvement in the upstream oil and gas space); our fair value for the stock is at least RM2.55 which implies a total return of 17.6% after including an implied dividend yield of 3.8%.

Source: Kenanga