• Deleum’s 60%-owned Deleum Technology Solutions (DTS) has entered into a settlement agreement with 6 parties in a suit filed in November 2020 involving former executives of the group, and executives of key client Petronas Carigali and its subcontractors. The suit is in relation to kickbacks given to Petronas Carigali in exchange for awards of multiple maintenance and services contracts.

• Recall that DTS was investigated by the Malaysian Anti-Corruption Commission (MACC) in December 2020 over possible improprieties. Following this, Deleum had ordered a special audit undertaken by PWC Consulting, which discovered irregularities for the award of a painting and alternative blasting services contract in 2014 and 2017.

• DTS was served with a suspension from participating in Petronas’ tender and contracts in March 2021, which was later lifted in December 2022.

• The settlement will involve:
  
  (a) payment of RM834k to 1 of the executives as part of outstanding invoices,
  
  (b) discontinuation of the suit to the executives, and
  
  (c) admission of liability by an executive with payment to DTS amounting to RM100k.

• Assuming the settlement is expensed in FY24F, we expect to see a net minor -1.3% impact on the group’s prospective core net profit.

• We believe this is a broadly positive move which resolves legacy issues for the group in part and serves as an indication of the direction for the existing suits with the remaining involved parties.

• We maintain our BUY call on Deleum with a fair value (FV) of RM1.66/share, pegged to a FY24F PE of 12x – at parity to Malaysian oil and gas operators’ average. Our FV implies an unchanged neutral 3-star ESG rating (Table 2).

Source: AmInvest Research - 15 May 2024