Investment Highlights

We maintain BUY on Deleum as 9M24 earnings exceeded expectations at 88% of our estimates driven by broad-based strength, particularly from recovery of the Oilfield Integrated Services (OIS) segment. Accordingly, we raised our FY24-25 earnings upwards by 8-10% to account for the same. We raised our TP to RM2.00/share (vs. RM1.80 previously), pegged to a CY26 PE of 10x - at par to its 5-year average, which we believe is fair based on a stable outlook over its growth prospects.

• Maintain BUY. We revised earnings upward by 8%-10% for FY24-FY26F to account for higher-than-expected contribution from both the Power & Machinery (P&M) and OIS segments. Similarly, we raise our TP to RM2.00/share (from RM1.80 previously) based on a CY26 PE of 10x. The group currently trades at a compelling bargain of only 7x, an unjustified discount given its relative performance to peers and prospects as a brownfield services provider.
• Above expectation. 9MFY24 core net profit (CNP) of RM59mil accounted for 88% of ours and 87% of streets' estimate. The upbeat earnings stemmed from higher contribution from the P&M segment, which posted an increase in revenue by RM59mil (+13% YoY) from higher sales of gas turbine packages (+6% YoY) as well as valves and flow regulator services (+4%). Meanwhile, The Oilfield Integrated Services (OIS) segment made a significant turnaround to a positive PBT of RM8.9mil in 9MFY24 (v. LBT -RM7.2mil in 9MFY23), representing growth of 2.2x.
• Growing orderbook. In October this year, Deleum was awarded two contracts by Petronas Carigali for the provision of Pan Malaysia offshore maintenance, construction, modification (MCM) and hook-up and commissioning (HUC) services. The contract value remains undisclosed; however, these contracts represent a major addition to the Deleum's MCM portfolio, marking a pivotal moment as the company strengthened its position in Oilfield Integrated Services (OIS) segment, setting a solid foundation for renewed growth. We estimate the group's orderbook at RM650mil-RM700mil with visibility up to 1 year while its tender book remains elevated at RM1.2bil-RM1.3bil.

Source: AmInvest Research - 26 Nov 2024