Deleum Bhd is one of a handful of locally listed upstream oil and gas services equipment (OGSE) companies that have continuously recorded returns to shareholders, even throughout the period of lower-for-longer oil prices that was prevalent in most of the last decade’s second half, following the collapse of oil prices in 2014.
While some players downsized and others turned belly-up in the previous downturn, Deleum more than just stayed afloat; the group maintained its profitability, remained in net cash position, and made dividend payouts every year, without fail.
Therefore, despite industry headwinds, the 40-year-old outfit registered a return on equity (ROE) of 9.7% in the financial year ended Dec 31, 2019 (FY2019), 2.1% in FY2020 and 4.8% in FY2021, topping the energy sector with the highest weighted average ROE of 5% during the three-year period under review among Centurion member companies.
What is its secret? A solid power and machinery (P&M) segment, which made up for the weaker oilfield services (OS) and integrated corrosion solutions (ICS) businesses that support the upstream segment.
The P&M segment, the major contributor to the group’s earnings from 2019 to 2021, focuses on providing solutions for gas turbine generators, compressor packages and thermal engineering solutions. It also undertakes electrical and mechanical equipment repairs and services catering to requirements ranging from power generation to gas compression and pumping systems, and gas compressors for pipeline and production.
Recently, a turnaround of the two upstream-related businesses of OS and ICS gave the first hint of the growth prospects of this local well services expert as global O&G industry activities show signs of picking up, following the upward swing of oil prices.
And with upstream activities picking up coming out of the pandemic, the new management, led by group CEO Ramanrao Abdullah, has underlined plans for the next pace of growth in the OS and ICS segments.
In its financial results for the first quarter ended March 31, 2022 (1QFY2022), the outfit with a RM234 million market capitalisation said it would be “exploring new markets, investing in new product lines and geographical expansion, [and] pursuing opportunities in both the upstream and downstream sectors”. “The group will also keep track of cost management in an increasingly inflationary environment,” it said.
In an interview with The Edge in April, Ramanrao — a former Halliburton senior executive who has described his passion as “growing companies” — also made clear his intention of addressing the issue of loss-making operations to improve the group’s overall returns and to revisit its regional expansion efforts.
Another interesting prospect for the group is its niche, home-grown chemical solutions business, which adds value to its well-intervention offerings in the upstream segment by improving production.
This is on top of potential new product lines serving many brownfield and mature assets to be introduced that will be useful for O&G producers in the region.
Meanwhile, with the post-pandemic energy crisis shedding new light on the importance of oil and, particularly, gas, in the global energy mix, oil major investments are slowly making a return, including in the Asean region.
The local waters are also seeing new opportunities that support the environmental sustainability theme, such as the up-and-coming carbon capture utilisation and storage (CCUS), which may spur activities in the upstream segment.
In the first half of FY2022, Deleum’s net profit more than doubled year on year to RM16.57 million, or 4.13 sen per share, from RM7.15 million or 1.78 per share, as both its O&M and ICS segments showed improvement. The improved bottom line came despite relatively flat revenue growth, with the top line coming in at RM229.1 million, from RM228.93 million previously.
At the time of writing on Aug 30, Deleum had a trailing dividend yield of 4.74%. Its share price traded between 45 sen and 75 sen this year, a far cry from when it was trading above RM1 in the better part of the last decade — and peaked at RM2.59.
Can Deleum further tap the potential upside in the energy market? Considering the performance of the home-grown company in times of adversity, it is certainly one O&G contractor to watch in the coming years.