Investment Highlights

• We reiterate BUY call on Deleum with a higher fair value (F of RM1.70/share (from RM1.66/share previously), pegged to FY24F PE of 12x – at parity to Malaysian oil and gas operator average. Our FV implies an unchanged neutral 3-star ES rating .

• The higher FV is attributable to stronger earnings contributio from the integrated corrosion solutions (ICS) segment from higher-than-expected contract win. Similarly, we tweake FY24F earnings by +3% to account for the revision.

• Deleum has secured a contract from Petronas for the provisio of offshore, maintenance, construction and modificatio (MCM) services for the Peninsular Malaysia Assets (Ga Package) for a sum of RM105mil.

• Works for the package commenced on 16 May and is expecte to complete by 31 Dec 2024.

• Though the impact is minimal, we are positive on th development as the contract win indicates that Deleu remains a beneficiary of the local O&G capex upcycle. Reca that the segment has experienced operating losses sinc 2QFY23, as orderbook shrank considerably with th suspension of its anti-corrosion solutions license wi Petronas.

• Due to an expected increase in operating costs includin startup costs, high material costs and the current lack manpower supply, we impute a minor operating margin of 10 which will translate into slight operating profits vs. breakeve levels previously.

• Though the contract period is short, we gather from th grapevine that a renewal cycle for Petronas’ MCM work scop is due by 4QFY234, as many contractors are expected to se completion of their respective contracts after a slew extensions made in 2023.

• With this, we estimate the group’s orderbook at RM650m RM700mil with visibility up to 1 year while its tender boo remains elevated at RM1.2bil-RM1.3bil.

• We continue to like Deleum and see it as one of our to conviction calls within the small to mid-cap space, given i niche and asset-light business model. We gather that th group is well positioned within the industry as one of the mo preferred contractors within the power & machineries scen and the leading provider of slickline services.

• Stripping out the group’s net cash of RM214mil (37% of current market cap), Deleum currently trades at a highly compelling bargain FY24F P/E of only 6x, half of the local contractors’ average while offering attractive dividend yields of 5%.

Source: AmInvest Research - 11 Jun 2024