Deleum upgraded as fundamentals, prospects intact

PETALING JAYA: MIDF Research has upgraded its call on Deleum Bhd to “neutral” with downside bias from “trading sell”, as the group’s fundamentals and prospects remain intact.

On Wednesday, Deleum announced the award of Petronas’ maintenance, construction and modification (MCM) package, which was within expectation. The duration for the contract is five years, with works likely to begin in the second quarter of FY18.

The scope of works will generally include topside structural maintenance, hook up and commissioning and facilities improvement programmes.

Deleum will be partnering Icon Offshore Bhd to provide offshore support vessels for the works to be undertaken under the MCM contract. Icon Offshore will work under the capacity of a sub-contractor to Deleum.

MIDF Research has not made any changes to Deleum’s earnings estimates as the contract win was within expectation.

It noted that since news of the impending contract win was rife on newswires, Deleum’s share price has appreciated more than 26%.

“We therefore recommended a ‘trading sell’ position on this stock. Since our call, Deleum’s share price has retreated 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.”

As the bulk of activity and earnings will most likely take place in FY19, the research house is revising its call on Deleum to “neutral” with further downside bias while reiterating that its fundamentals remain intact. Its target price, however, is unchanged at 77 sen.

“Investors may consider accumulating the stock on share price retracements to benefit from earnings upcycle in H2 FY18 onwards.”

Deleum shares were up three sen to close at 94.5 sen today on some 1.4 million shares done.