Date: October 16, 2024
Broker: UOB Kay Hian
Company Overview
Deleum Berhad (DLUM MK) is a company that provides a diverse range of specialized products and services to the oil & gas industry. The company operates primarily in the Energy sector and is listed on the Malaysian Stock Exchange under the ticker “DLUM MK”. As of the report date, Deleum had a market capitalization of RM638.5 million (USD145.1 million) with 401.6 million shares issued.
Stock Data
- Share Price: RM1.55
- Target Price: RM1.70 (previous RM1.25)
- Upside: +9.7%
- 52-week High/Low: RM1.69/RM0.93
- Average Daily Turnover (3-month): USD0.3 million
- Major Shareholders:
- Lantas Mutiara: 20.4%
- Hartapac: 12.0%
Recent Performance
- Price Performance:
- 1 month: +23.4%
- 3 months: +20.2%
- 6 months: +11.5%
- Year-to-Date: +46.2%
- 1 year: +62.3%
Power & Machinery (P&M) Segment Growth
Deleum’s share price outperformance year-to-date is largely attributed to the success of its Power & Machinery (P&M) segment. Both subsidiaries, Turboservices and Penaga Dresser, have seen significant re-ratings due to strong operational performance. Revenue from Deleum’s P&M segment has been much higher than expected, even though the number of solar turbines in Malaysia (285 units as of January 2024) has decreased compared to historical levels. Caterpillar, the US-listed company that owns solar turbines, contributed to Deleum’s growth by benefiting from inflation-driven repricing in its Energy & Transportation (E&T) segment.
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Caterpillar’s Backlog: Caterpillar’s strong backlog for solar turbine sales, particularly for the Oil & Gas (O&G) sector and power generation industries, has positively impacted Deleum’s P&M segment. Sales of solar turbines for data centers and generative AI have also contributed to this growth.
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Penaga Dresser’s Expansion: Penaga Dresser, another key subsidiary, has seen its profit triple in 2023, reaching RM24 million. Penaga has diversified its offerings, moving beyond Baker Hughes’ control valves to include total valve management services for O&G and power generation industries.
Oilfield Integrated Services (OIS) Segment
Deleum’s OIS segment, covering Oilfield Services (OS) and Integrated Corrosion Services (ICS), had faced a revenue decline from 2023 to 1H2024 due to delays in multi-year slickline and offshore maintenance, construction, and modification (MCM) contract renewals. However, there was a recovery in slickline revenue and profit in 2Q24. Deleum’s execution of a RM105 million Petronas Carigali MCM contract (May-Dec 2024) is expected to sustain its OIS segment’s profitability.
Key Catalyst: MCM Contract Wins
The report highlights that Deleum has likely secured two significant five-year MCM contracts:
- Package A, Petronas Carigali MCM (Peninsular Gas)
- Package A, Petronas Carigali MCM (Sarawak Gas)
These contracts could provide further upside for Deleum’s OIS segment. Securing these contracts would represent a significant catalyst for the company, especially given Deleum’s potential to execute MCM projects in Sarawak for the first time. Deleum’s workforce, 24% of which comes from Sabah and Sarawak, is well-positioned to handle this expansion.
Environmental, Social, and Governance (ESG) Efforts
Deleum is actively working on its Environmental, Social, and Governance (ESG) agenda. Some key highlights include:
- Environmental: Deleum has committed to reducing greenhouse gas emissions by 26% in 2022 and 30% in 2021. It is aligning its GHG reduction targets with global standards.
- Social: The company reported zero incidents of human rights infringements or forced labor.
- Governance: Four out of seven board members are independent, and Deleum has a strong anti-corruption policy, with no reported corruption incidents.
Financial Performance (2024-2026 Projections)
- Revenue: RM878 million (2024F), RM900 million (2025F), RM958 million (2026F)
- EBITDA: RM158 million (2024F), RM154 million (2025F), RM163 million (2026F)
- Net Profit: RM72 million (2024F), RM68 million (2025F), RM69 million (2026F)
- Earnings Per Share (EPS): 18.2 sen (2024F), 16.9 sen (2025F), 17.3 sen (2026F)
Dividend and Balance Sheet
Deleum’s dividend yield is forecasted to be between 4.3% and 5.9% from 2023 to 2026, indicating a healthy return to shareholders. The company maintains a strong balance sheet, with net cash positions expected to remain above RM150 million in the long term.
- Dividend Yield:
- 2023: 4.3%
- 2024F: 5.9%
- 2025F: 5.5%
- 2026F: 5.6%
- Net Debt to Equity:
- 2023: -51.6%
- 2024F: -33.4%
- 2025F: -35.5%
- 2026F: -38.7%
Valuation and Recommendation
UOB Kay Hian maintains a “HOLD” rating on Deleum with an adjusted target price of RM1.70, based on a 10x 2025F price-to-earnings (PE) ratio. The report indicates a balanced risk-reward outlook, with minor trading upside. The primary catalysts for further stock price appreciation include securing the next five-year MCM contracts and sustained growth in the P&M and OIS segments.
In conclusion, while Deleum is well-positioned for future growth, especially with its balance sheet and MCM contract wins, the report suggests maintaining a cautious approach due to uncertainties in the energy transition space.
