• Deleum announced that its subsidiary Deleum Technology Solutions (DTS), formerly known as Deleum Primera, has received a letter from Petronas confirming the uplift of suspension against the company effective from 12 December 2022. Note that DTS is mainly involved in the provision of corrosion inspection and mitigation services for the oil and gas industry.

• Recall that Petronas suspended DTS from participating in tenders and contracts back in March 2021 due to the discovery of unethical and integrity issues linked to work under the operations of Petronas Carigali.

• Subsequent to the uplift of suspension, DTS is also required to submit an application to renew its license for a period of 1 year in accordance with Petronas’ licensing and registration requirements.

• Overall, we are positive on the long-awaited uplift of suspension by Petronas as it allows DTS to re-establish a sustainable business relationship with the national oil and gas company, thus boosting the near-term order book replenishment outlook.

• We retain FY22F-24F earnings as it already reflects potential earnings improvement in the integrated corrosion solutions segment in view of a sequential uptick in jobflows from Petronas following the settlement of unfavorable corporate governance issues.

• We maintain BUY on Deleum with an unchanged fair value of RM1.02/share, pegged to FY23F PE of 11x (10% below Malaysian oil & gas (O&G) operators’ average of 12x) together with a 3% discount to our unchanged 2-star ESG rating.

• Deleum is currently trading at an unjustified FY23F PE of 9x, 25% below the sector average of 12x. Stripping out the group’s net cash from the market cap, the stock trades at a bargain FY23F PE of only 4.5x while offering a compelling dividend yield of 6%.

Source: AmInvest Research - 16 Dec 2022