INVESTMENT HIGHLIGHTS

• Deleum Bhd announced award of Petronas MCM Package (C) Peninsula Malaysia Offshore Gas as expected

• Contract duration for 5-years

• Works likely to start in 2QFY18

• Revert to Neutral with downside bias with unchanged TP of RM0.77 per share

MCM win. Deleum Berhad announced the award of PETRONAS’ Maintenance, Construction and Modification (MCM) Package (C) Peninsula Malaysia Offshore Gas as expected. The contract duration is for a period of 5-years on a call-out basis. The scope of works will generally include Topside Structural Maintenance, Hook Up and Commissioning and Facilities Improvement Program.

In partnership with Icon Offshore. Deleum Berhad will be partnering

Icon Offshore Bhd (not rated) 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.

Impact on earnings. No changes to earnings estimate as contract wins within expectations.

Revert to NEUTRAL. Since the news of the impending contract win was rife on the newswires, Deleum’s share price has appreciated by more than +26%. We therefore recommended a Trading Sell position on this stock. Since our call, Deleum’s share price has retreated by over -3% and we continue to expect further share price weakness. Our view is largely due to the fact that earnings accretion from the MCM jobs will most likely be recognised towards the latter part of FY18 only. The bulk of the activity and earnings will most likely take place in FY19.

Unchanged TP. We therefore revert our call to NEUTRAL with further downside bias but reiterate that Deleum’s company fundamentals and prospects remain intact. We are maintaining our TP of RM0.77 per share. 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 9x. 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 18x.

Source: MIDF Research - 5 Oct 2017