· Post the oil crash!! We last looked at DELEUM as a trading idea in Sep-14. Post that, crude oil has crashed by (-60.1%) and is now hovering precariously at USD40-48/bbl (WTI and Brent). With that so have valuations for the oil and gas stocks. We take a re-look at the stock in light of the change in the macro outlook.

· Satisfactory performance thus far. Unlike some of its peers, DELEUM managed to show positive growth in its 3Q14 results. The sequential QoQ growth (+6%) was largely thanks to the Power and Machinery (PMO) segment that earned higher PBT (+76.9%) on the back of retrofit works. This helped trump the lower PBT earnings from the i) oilfields services division (-36.7%) which was down due to lower margins from its chemical business; and its ii) associate earnings (-31.9%) which was lower due to lower throughput of MMC. Higher slickline activities in 3Q14 (versus 3Q13) and sustained Power & Machinery business helped DELEUM achieve a YoY net profit growth of 17.2%.

· Long term Slickline contracts nearly fully deployed. We understand that DELEUM has nearly deployed the requisite slickline units (c.46units) for the Pan-Malaysia Slickline Contracts, hence the full-contribution of earnings will be seen in FY15. We believe this is one of the main drivers of the 19.3% net profit growth that consensus is forecasting for. As at 3Q14, DELEUM has c.50 slickline units operational (80% dedicated; 20% on call-out), mainly as they have managed to farm-in other slickline works as well.

· Order book stands at RM3.94b; inclusive of a Sponge Jet Blasting contract worth c.RM100-150m won in end Dec-14. Power and Machinery (PMO) division accounts for the lion’s share of the order book at 70%, Oilfield services (OS) accounts for c.25% and the balance of 5% is taken up by the Maintenance, Repair and Overhaul (MRO). Tender book is guided at RM500m.

· Cautious on Petronas’s capex and opex announcement cuts. Whilst there have been no rate and operational revisions thus far, DELEUM does not discount any of such scenarios, given that, this time, Petronas seems serious about capex and opex cuts. Hence, management is cautious on FY15’s operations.

· Consensus net profit forecasts slightly lower. Whilst the crude oil crash was significant, consensus only trimmed forecasts by 2.3-2.9% for FY14-15; translating to a net profit of RM55.5-66m (from RM57-68m previously). This translates to FY14-15 EPS of 13.9- 16.5 sen. · Still one of the highest dividend-paying stocks. The company does not guarantee it will continue with its tradition of a 50% dividend payout ratio. However, assuming it does, the implied FY15 dividend yield stacks up at 4.7%.

· Looking fully-valued at this juncture. At the current share price, DELEUM is trading at FY15E PER of 10.5x. Whilst it boasts both; i) healthy earnings growth (FY14-15 net profit growth of 12.0-18.9%); and ii) attractive dividend yield; we believe the stock is fully-valued for now given the uncertain oil and gas macroeconomic environment. We believe stocks like DELEUM should trade at c.10x (similar to the PER ascribed to UZMA (OP;TP:2.02) which is a discount to the PER attached to larger-cap stocks like SKPETRO (OP;TP:3.03) which we have ascribed at 13x.

· We advocate a TRADING SELL call at RM1.65 (versus RM2.55) on the stock for now, based on a 10x CY15 PER. We believe the sector is in for a volatile time given the uncertainties with crude oil prices that seems to still be trending down.

Source: Kenanga