This article first appeared in The Edge Malaysia Weekly on August 5, 2024 - August 11, 2024

Deleum Bhd (KL:DELEUM) is on a roll. This is evident by how the group’s bottom line, which has been in recovery mode since the oil crash of 2020, surpassed its FY2019 pre-pandemic earnings by FY2022, and continued to strengthen in FY2023.

In fact, the integrated upstream oil and gas outfit posted its best bottom line in nine years in FY2023. Net profit for the year ended Dec 31, 2023 reached RM45.74 million — its highest since FY2014, when it recorded a net profit of RM59.32 million — on robust contribution from its core power and machinery (P&M) segment, under which it sells gas turbine packages, valves and flow regulators, as well as provides after-sales support and services. The stronger P&M segment offset decreased contribution from both its oilfield services and integrated corrosion solution segments.

Prior to that, the group’s net profit, which dropped from RM33.15 million in FY2019 to RM7.43 million in FY2020, rose to RM17.07 million in FY2021, and to RM42.14 million in FY2022. This means Deleum’s net profit growth from FY2020 to FY2023 came in at a compound annual growth rate (CAGR) of 62.5%, the strongest among its peers in the energy sector.

Its return on equity (ROE), which stood at 4.83% in FY2021, jumped to 11.28% in FY2022 and further to 11.4% in FY2023, yielding a weighted ROE of 10.1% for the three-year period.

As earnings recovery gained momentum, investors have been nibbling at Deleum’s shares, which pushed the group’s share price up from 46.8 sen (adjusted) at March 31, 2021, to 56.6 sen a year later, then to 85.4 sen by March 31, 2023, and further to RM1.33 by end-March this year. The climb translates into a CAGR of 24.99% over the three-year period — also the strongest among its peers.

These achievements earned Deleum a clean sweep at The Edge Malaysia Centurion Club Corporate Awards 2024 in the energy sector, winning it the awards for highest profit after tax growth, highest ROE and highest returns to shareholders over the last three years. This raised its tally of Centurion awards since 2019 to seven, as Deleum had previously won three awards for highest ROE over three years, and one award for highest returns to shareholders.

Meanwhile, the company is one of the few dividend-paying companies in the sector. When other O&G counters were struggling, it has consistently paid dividends since 2007. Its dividend payout has improved from one sen per share in FY2020 to 2.2 sen in FY2021, 5.25 sen in FY2022 and further to 5.7 sen or a total of RM22.89 million in FY2023 — its biggest payout since FY2014. Deleum has a policy of paying at least 50% of its net profit as dividends. Based on Deleum’s share price of RM1.32 on July 22 this year, the dividend yield stood at 4.3%.

At the same time, the company managed to reduce its gearing from 22.5% in FY2020 to 0.6% at end-FY2023, as it repaid its term loans and revolving credits “to maintain a cautious and sustainable capital structure, thereby improving overall financial resilience and flexibility for future ventures”, according to its latest annual report.

Deleum is now in a strong net cash position of RM213.47 million, up from RM165.53 million in FY2022, which represents about 40% of its market capitalisation of RM534.1 million as at the March 31 cut-off date of the Centurion awards this year.

With a keen eye on the future, Deleum is actively pursuing more growth. These include mergers and acquisitions, investments in early-stage companies, and expansion into Indonesia’s growing downstream energy sector. It also wants to take up minority stakes in upstream oil and gas (O&G) technology companies to broaden their product lines.

“We are looking to invest in early stage companies that develop new technologies in the O&G industry, with the view of commercialising the technologies. What I envision for Deleum … is to create a mini Halliburton, a Schlumberger or a Baker Hughes,” said Deleum group CEO Ramanrao Abdullah in an interview with The Edge in May.

Rao, as he is known, was appointed to his current position in July 2021 and also sits on Deleum’s board. He has a deemed interest of 20.36% in the company.

“Deleum is a good dividend company with decent margins, but there was no new growth and technology infusion. Our shareholders have to see there is a future and growth for the company,” he added.

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