Deleum a solid play even amid uncertainty in oil and gas

PETALING JAYA: UOB Kay Hian Research (UOBKH Research) believes there will be an “unquestionable critical need” for turbine and pipeline maintenance, given a number of catalysts despite the uncertainties in the oil markets.

The research house said factors including the recent decision by Organisation of the Petroleum Exporting Countries (Opec) to increase oil supply and Petroliam Nasional Bhd’s (PETRONAS) two million barrels of oil equivalent per day target for local production, alongside recent pipeline incidents, will spur demand for maintenance services.

UOBKH Research said it likes oil and gas solutions provider Deleum Bhd for its lean balance sheet that positions it for growth.

“With an asset-light balance sheet and ample net cash at hand, Deleum aspires to be an integrated maintenance player with a strong regional footing, but is selective and careful in expansion,” it added.

The research house said even without growth, Deleum’s current price is attractive with a 9% dividend yield to its forecast.

The research house expected sustainable aftermarket demand from the oil and gas sector for Deleum.

UOBKH Research said Deleum’s power and machinery segment has about 84% market share in local gas turbines with capacities of between 1MW and 24MW that are mostly installed on offshore oil and gas platforms. The firm is also able to fully pass down inflation to its customers.

“Since the pandemic, revenue from power and machinery has nearly doubled to RM717mil and 79% of the group’s revenue mix. While the number of active solar turbines appears to have declined, we understand the baseline revenue for last year is sustainable, especially on incremental turbine and valve maintenance demand stressed by PETRONAS in its latest outlook,” the research house said.

The research house added that Deleum will see upward maintenance revenues until the turnaround of the Pengerang Integrated Complex (PIC) in Johor in 2027, due mainly to its dominant market share for turbine provisions to PIC.

UOBKH Research has maintained a “buy” call on the stock, raising its target price to RM1.90 from RM1.70.

“By cutting this year’s price-earnings valuation from 10 times to eight times to factor in current market conditions, our valuation is 25% more conservative versus management’s RM1bil target,” it said.

It also revised upwards Deleum’s 2025 to 2027 earnings forecast by 39%, 53% and 48%, respectively, mainly from adjusting the power and machinery revenue base higher by 20% to 25%.

“We now assume that at the very least, revenue from subsidiary Turboservices Sdn Bhd will stay above the RM700mil base, while for subsidiary Penaga Dresser Sdn Bhd, we assume revenue will continue to grow and may even reach the RM150mil mark in the long term.”

Deleum’s shares ended yesterday at RM1.45, an increase of 3.57%.