Thursday, September 5, 2013

TOP MALAYSIA SMALL CAP COMPANIES - Deleum

TOP MALAYSIA SMALL CAP COMPANIES
30 JEWELS 2013 Edition

Deleum.
Target: MYR4.40
Price: MYR3.49
More Contracts Coming

Investment Merits
•Key beneficiary of the national oil company’s enhanced oil recovery (EOR) programme
•Key beneficiary of Petronas’ marginal oilfield initiative
•Strong balance sheet to fund further growth


Company Profile
Deleum is a provider of specialised products and services to the oil & gas (O&G) industry, particularly in the exploration and production (E&P) segment. The Group also provides services in power and machinery.

Highlights
Recurring income from power and machinery business. Deleum supplies a range of specialised equipment and technical services, comprising: i) gas turbine packages, ii) subsea production systems, and iii) umbilical solutions. The Company has the capability to be involved in the entire gas turbine solution chain, from initial consultation to commissioning. Post-commissioning, Deleum offers technical support and maintenance throughout the lifespan of a gas turbine, which provides recurring income for the Company. Among Deleum’s O&G customers are Petronas, ExxonMobil, Shell, and Talisman.

Key beneficiary of marginal oilfield initiative. We believe that Deleum will likely benefit from Petronas’ marginal oilfield initiative, as it can provide services to the consortiums developing the marginal oilfields. These include wireline services, production and drilling equipment, and specialty chemicals.

Strong management team. Deleum’s primary O&G experience lies with Datuk Vivekananthan, who co-founded the Company in 1982 and has over 45 years of experience in the industry. Outgoing group managing director Chandran Aloysius Rajadurai has been with Deleum since 1992 and has over 24 years of experience in the O&G sector. Mr Nan Yusri, who was appointed as new Group MD with effect from 1 March 2011, has been with the Company since 1996.

Company Report Card
Latest results. 1QFY13 results came in weak, due mainly to lower services rendered within its O&G division. We anticipate better results from 2QFY13F onwards, as activities in the O&G market are expected to pick up.

Balance sheet / Cashflow. Deleum is in a net cash position. Given its healthy balance sheet, we believe our forecast dividend payout ratio of 40.0% is sustainable.

ROE. ROE is expected to come in at 20.8% in FY13F.

Dividend. Given its healthy balance sheet, we project a dividend payout ratio of 40% moving forward, which represents a dividend per share in FY13F of 13 sen per share.

Management. The incumbent MD Mr Nan Yusri has been with Deleum since 1996 and has had ample on-the-ground experience in the Group’s day-to-day operations. Since his promotion in 2011, he has managed to revamp Deleum’s business model into one that incorporates more recurring income streams.

Recommendation
We value the stock at MYR4.40, pegged to 11x FY14F EPS. Key catalysts for the Company include: i) securing more oilfield services contracts, and ii) better-than-expected sales in its power and machinery business, which will ultimately lead to more recurring income from its after-sales services.



Source/Extract/Excerpts/来源/转贴/摘录: RHB-Research,
Publish date:30/07/13

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