Deleum vs Dayang

[i4value]

The marine charter business has caused a lot of headaches for the Bursa oilfield services companies. This is best illustrated by the ROE of Dayang and Deleum.



Both are in the topside maintenance services business. The different between them was that Dayang ventured into the marine charter business in the early part of the last decade

You can see that the returns for Dayang were badly affected in 2017 and 2021 by impairments due to poor vessel utilization.

Moral of the story? The wrong strategic choice can cause great problems

[i4value]

In 2023, the Bursa Malaysia energy index grew at 5.4 %. In contrast, the S&P 500 energy index contracted at 3.7 %. WTI crude oil prices contracted by 9.9 %

Of course the composition of the companies making up the indices for Bursa Malaysia are different from that for the S&P 500.

If you are hunting for oil and gas companies to invest in, doesn’t it makes sence to look at Bursa Malaysia counters. In this context, Deleum looks like a good candidate.

It did well when crude oil prices were high. But when oil prices were in the trough part of the cycle during 2015 to 2019, the company performance deteriorated. Its performance improved over the past 2 years due to the better crude oil prices. Over the cycle, the Group delivered average returns that were greater than its cost of funds. The Group is also financially sound



When you compare Deleum ROE trend with the share price trend, do you think that there is still an opportunity to go in?

[weijian]

When you compare Deleum ROE trend with the share price trend, do you think that there is still an opportunity to go in?

Hi i4value,

Deleum's FY22 ROE of 10.8%, look similar to its FY19 (pre covid) of 9.5%. But it is actually more efficient now because as of end FY22, it is ~2% geared while it was 25% geared in FY19.

And looking at latest 9M23 results, it does suggest a high single digit YoY increase from FY22 profitability. Cash has ballooned back to slightly more than 50% of equity as it reduces its working capital. In addition, CAPEX for the last few years has been consistently lower than depreciation. The company has been consistent in paying 50% of NP in recent years. What will it do with its ballooning cash? Bid for more contracts?

As an upstream service provider, it is ultimately dependent on whether the oil majors decide to increase E&P spending. And oil prices still seem to be the ultimate harbinger of its "future share price".