PETALING JAYA: Deleum Bhd
is expected to see a stronger second half as the group moves beyond a weaker first quarter usual for oil and gas players due to the monsoon season.
UOB Kay Hian (UOBKH) Research said the group’s oilfield integrated services will likely see lesser losses, as slickline contracts fully transition to operations even if its maintenance, construction and modification (MCM) segment records a profit.
“We also understand that the MCM contract is contractually allowed for price renegotiation in 2027.
“Our forecasts are in line with management’s guidance, which is realistic given the group’s first MCM contract reached sustainable profitability in the third quarter of 2018,” it said in a report.
Additionally, the research firm said Deleum had other key earning drivers like better sales for its in-house desludging technology as well as operations in Indonesia via PT OSA Industries Indonesia.
On top of that, the group’s order book, currently at RM2.5bil, puts it in a sweet spot given a strong track record and share in Solar Turbines International Company.
However, the research firm said it could take a quarter to observe any material catalysts for well intervention services, aligning with views of global oilfield services companies.
As for the impact of the diesel cost, UOBKH Research noted Deleum’s fuel consumption was lighter than its peers in the industry.
“Assuming similar fuel consumption with no pass-through mechanism, and unsubsidised diesel prices being RM4 higher than the RM2.99 per litre prior to the war, the operating expenditure impact to our 2026 earnings is negligible at below 3%,” the research firm explained.
It also said the Middle East war may have a positive impact on Deleum on the back of higher fuel costs leading to more drilling and well intervention activities.
“For oil majors, production enhancement activities are the low-hanging options to arrest the natural decline of existing wells.
“In Malaysia, domestic crude production had more than halved to merely 350,000 barrels of oil equivalent per day,” UOBKH Research said.
With that, UOBKH Research said it will maintain a “buy” call on the stock with a higher target price of RM1.75 from RM1.55 with a valuation pegged to a higher nine times the forecast 2026 price-to-earnings ratio.
“We see Deleum as the key beneficiary of maintenance, and a premium stock among oil and gas small caps due to the structural themes above.
“Its dividend paying ability will not be constrained by a higher capital expenditure appetite, given its lean balance sheet and stable cash flow generation.
“The current price offers an 8% dividend yield.”
