DEVELOPMENT

• Deleum Bhd (Deleum) announced that Deleum Technology Solutions Sdn Bhd (DTS), Deleum's 86.7% owned indirect subsidiary, has received two Letters of Award (LOA) from PETRONAS Carigali Sdn Bhd (PCSB), which grant DTS the contracts for the provision of: o Pan-Malaysia Offshore Maintenance, Construction and Modification (MCM) for Peninsular Malaysia Asset (PMA) - Oil Package A1), and o Hook-Up & Commissioning (HUC) Services for Sarawak Asset (SKA) - (Gas Package A4).
• Both PMA and SKA contracts is set for 5 years with the extension option for one term of 3 years and thereafter one term of 2 years. The scope of work includes the provision of manpower, tools and equipment, materials, consumables and other related services.

OUR VIEW

• Robust demand for upstream services. We opine that LOAs by PETRONAS Carigali signals resilience and long- term stability in the upstream division. These awards indicate ongoing investment and commitment to E&P and maintenance activities, which are crucial for sustaining and enhancing oil and gas production in the long run. Consequently, the higher demand for OGSE services - notably MCM services for offshore facilities and equipment - bodes well for Deleum's future revenue and earnings, further enhancing its position in the market as a reliable and sustainable service provider for offshore operations.
• Challenges on contract expected, but manageable. The risks of the LOA are identified as but are not limited to: (i) occupational safety risks, (ii) execution risks, (iii) availability and capability of manpower, (iv) higher material costs, and (v) unfavourable external factors (geopolitics, macroeconomics and regulations). However, we believe that DTS is capable in mitigating these risks. We also noted that DTS has the experience and expertise to undertake MCM and HUC services, given its track record with blasting, painting, piping fabrication and offshore execution services offered to PETRONAS Carigali for over a decade.
• All in all, we maintain positive on these LOAs for Deleum's future operations. These contracts are a testament to their expertise and reliability in delivering critical offshore services, subsequently reinforcing the group's position in the OGSE subsector. Adding this update to the contract secured by DTS for an MCM service for PETRONAS Carigali granted in June CY24 worth RM105m, we believe that Deleum will continue to benefit from the resilient upstream division.
• We make no changes to our forecast projection for Deleum at this juncture, pending more information on the LOA and the group's 3QFY24 results. As such, we maintain our BUY call, with an unchanged target price of RM1.64.

Source: MIDF Research - 1 Nov 2024