Deleum’s RM3.8b order book gives long-term earnings visibility

by **Cals** Mon 09 Mar 2015, 23:11

Deleum’s RM3.8b order book gives long-term earnings visibility

By AllianceDBS Research / AllianceDBS Research | March 9, 2015 : 10:13 AM MYT

Deleum Bhd
(March 6, RM1.65)
Maintain hold call with a lower target price (TP) of M1.60: Our TP is adjusted to RM1.60 (10 times price-earnings ratio, financial year ending Dec 31, 2015, FY15) from RM1.65 previously, after we factored in higher interest expenses.

Our “hold” call is supported by a healthy dividend yield of 5% going forward. The RM3.8 billion order book provides long-term earnings visibility as the group’s lengthiest contract extends to 2023.

Key contracts that will support earnings going forward are umbrella contracts for the supply and maintenance of gas turbines (RM2 billion to RM2.5 billion estimated outstanding value), provision of slickline equipment and services (RM750 million estimated outstanding value), and smaller contracts for corrosion control and chemical supplies.

But Petroliam Nasional Bhd (Petronas) cutting operating expenditure will dampen growth. We expect Petronas’ move this year to impact Deleum’s contracts which are largely on an on-call basis.

This is especially so for the gas turbine contracts; there will be a lower demand for new gas turbine packages.

Carrying the group through FY15 will be the slickline contract, of which 80% of the 55 units rolled out are on a take-or-pay basis. For FY15, we expect modest growth of 6% before offshore activities normalise in FY16,driving growth of 11%. — AllianceDBS Research, March 6

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This article first appeared in The Edge Financial Daily, on March 9, 2015.