Deleum Berhad: A Beacon of Resilience in the Energy Services Sector

Introduction
Amidst the volatility of the global energy sector, Deleum Berhad (KLSE:DELEUM) has emerged as a standout performer, leveraging robust financial metrics, a disciplined strategy, and a resilient orderbook to navigate industry headwinds. With a net cash position of MYR199.3 million, a record-breaking FY2024 net profit of MYR74.2 million, and a firm orderbook of RM1.6 billion, the company is positioned to capitalize on sector recovery and strategic growth opportunities. This article explores why Deleum's financial health and strategic execution make it an undervalued asset in the Malaysian energy services landscape.

Financial Resilience: Cash, Profitability, and Margin Expansion

Deleum's financial strength is anchored by its net cash position of MYR199.3 million as of December 2024, which contrasts sharply with borrowings of just MYR15.1 million. This liquidity buffer provides flexibility for acquisitions, debt repayment, and shareholder returns.

Profitability has surged dramatically:
- FY2024 net profit rose 62.1% year-on-year to MYR74.2 million, the highest in the company's history.
- Revenue increased 14.6% to MYR907.5 million, driven by both core segments:
- Power & Machinery (P&M) revenue grew 7.3% to MYR716.7 million, while PBT (pre-tax profit) jumped 36.5% to MYR135.6 million.
- Oilfield Integrated Services (OIS) rebounded strongly, with revenue surging 54% to MYR189.9 million and PBT turning positive after years of losses.

The improved profit margin (6.9% in Q1 2025 vs. 5.7% in Q1 2024) reflects operational efficiencies, including cost controls and higher-margin contracts. While explicit EBIT figures are not disclosed, the 34% YoY net profit growth in Q1 2025 and margin expansion strongly suggest underlying EBIT momentum.

Strategic Growth Drivers: Acquisitions, Orderbook, and Geographic Expansion

Deleum's growth is fueled by strategic moves to diversify its service offerings and geographic footprint:

1. Acquisitions:
2. The RM60 million acquisition of Thai-based MPC Future's oilfield assets expands its regional presence and solidifies its position in upstream oil services.

3. A 70% stake in PT OSA Industries Indonesia (valued at RM12.1 million in profit guarantees) adds valve maintenance and chemical services capabilities, enhancing cross-border synergies.

4. Orderbook:

5. A RM1.6 billion orderbook (as of December 2024) ensures visibility into future revenue, with projects to be delivered over the next 24 months. Key contracts include:

   • A five-year Pan Malaysia maintenance and construction (MCM) agreement with Petronas Carigali.
   • A five-year slickline contract in the oilfield segment.
   • A RM107 million solid control and waste management deal with Petronas.

6. Sector Catalysts:

7. Geopolitical tensions (e.g., Israel-Iran conflicts) are driving energy sector volatility, favoring firms like Deleum with long-term client agreements (e.g., the Hess Corporation LOA).
8. While the Malaysian Energy Services industry is projected to decline 2.7% annually, Deleum aims to outperform with 9.5% annual revenue growth through its orderbook and efficiency gains.

Dividend Sustainability and Undervaluation

Deleum's dividend policy balances growth and shareholder returns:
- FY2024 dividends totaled 9.30 sen per share, a 50.4% payout ratio of net profit.
- With a MYR1.64 share price, the trailing dividend yield stands at 5.7%, offering income investors a compelling entry point.

Analysts at MIDF Research maintain a BUY rating with a MYR1.92 price target (implying a 17% upside), citing strong fundamentals and orderbook execution. While Simply Wall St flags “two warning signs” (potentially overvaluation or leverage risks), Deleum's net cash position and disciplined capital allocation mitigate these concerns.

Risks and Considerations

• Oil & Gas Cyclicality: Deleum's reliance on energy sector demand exposes it to price fluctuations. However, its long-term contracts and diversification into solid control and chemical services reduce exposure to short-term commodity swings.
• Project Execution: Delays in orderbook projects could impact revenue recognition. Management's track record of delivering on large contracts (e.g., the Petronas agreements) suggests robust execution capabilities.

Conclusion: A Compelling Buy at Current Levels

Deleum Berhad combines financial resilience, strategic execution, and sector tailwinds to present a compelling investment case. With a net cash position, a robust orderbook, and a dividend yield of nearly 6%, the stock appears undervalued relative to its growth prospects.

Investment Recommendation:
- BUY with a 12-month target of MYR1.92 (MIDF's price target).
- Hold for income investors seeking stable dividends.

Deleum's ability to capitalize on energy sector recovery and its disciplined capital allocation make it a standout play in the Malaysian energy services sector.