Deleum Bhd (Deleum)’s wholly-owned subsidiary, Deleum Oilfield Services Sdn Bhd received a letter of award from ExxonMobil Exploration and Production Malaysia Inc (EMEP) to provide Slickline Equipment and Services. The contract commenced in mid-March of calendar year 2023, and is expected to last for 4 years.
The contract value was not stated. However, Deleum had previously won a similar contract from EMEP in 2018.
“At the time, the group mentioned that the value of the contract depended on agreed rates and work orders issued by EMEP during the contract tenure,” said MIDF Research (MIDF) in a recent report.
Execution risks remain, and the challenges to the contract include but are not limited to: (i) execution risks in terms of availability of skilled workers and changes to costs, and (ii) changes in political, economic and regulatory conditions.
Nevertheless, in consideration of Deleum’s experience and expertise in the services requested, we believe the aforementioned risks can be mitigated. While MIDF expects the contract to contribute positively to Deleum’s financial performance moving forward, they make no changes to their earnings estimates in this early stage of the contract, pending its quarter one financial year 2023 results in May.
MIDF reiterates their positive view on Deleum and its prospects in the upstream. MIDF also maintains their BUY call with the target price of RM1.22, by pegging a price earnings ratio of 8.5x to earnings per share of 2023 of 14.4sen. The price earnings ratio is based on the upstream energy services and equipment’s 5-year average.
