INVESTMENT HIGHLIGHTS

• Deleum Berhad’s (Deleum) 1QFY17 earnings disappointed with a decline of -83%yoy to RM1.3m

• Decline in earnings is premised on decline of revenue by - 40.8%yoy to RM89.9m

• 2HFY17 expected to perform better

• Orderbook remains intact at approximately RM2.1b

• Downgrade to Neutral with revised TP of RM1.00 per share

Earnings marred by low work orders. Deleum’s 1QFY17 earnings were lower by -83%yoy to RM1.3m premised on lower revenue of RM89.9m. The large portion of the decline was from its Power & Machinery segment. 3MFY17 earnings failed to keep pace with our full year earnings estimates.

Power & Machinery (P&M). Segment revenue and earnings declined by -49.2%yoy and -57.7%yoy respectively due to lower work orders for exchange engines and lower contribution from parts, repairs and maintenance and valve and flow regulators.

Oilfield Services (OS). Similar with the P&M segment, the OS segment revenue and profit experienced large declines of -24.5%yoy and - 88.1%yoy respectively. Utilisation of the slicklines registered a decline and lower revenue contribution from well intervention and enhancement services were recorded.

Integrated Corrosion Solution (ICS). Contrary to the P&M and OS segments, ICS segment revenue increased by +41.8%yoy to RM7.8m while registering marginal profit.

Prospects buoyed by strong orderbook. Deleum’s orderbook remains buoyant at approximately RM2.1b representing a burn-rate of around four years. Earnings visibility continues to remain intact.

Impact on earnings. Due to the poorer than expected first quarter earnings, we are reducing our FY17 and FY18 earnings forecasts to RM27.3m and RM44.5m respectively. We are still anticipating better 2HFY17.

RETURN STATS

Price (23 June 2017) RM0.97 Target Price RM1.00 Expected Share Price Return +3.1% Expected Dividend Yield +3.6%

Expected Total Return +6.7% STOCK INFO

KLCI 1,767.17 Bursa / Bloomberg 7113 / DLUM MK Board / Sector Main / Trading Services Syariah Compliant Yes Issued shares (mil) 400 Market cap. (RM’m) 400.0 Price over NA 1.4 52-wk price Range RM0.80-RM1.23 Beta (against KLCI) 1.87 3-mth Avg Daily Vol 0.203m 3-mth Avg Daily Value RM0.203m Major Shareholders (%) Lantas Mutiara 20.43 Hartapac Sdn Bhd 12.04 Nathan Vivekananthan 10.70 Mustaffa Zaiton 8.05 IM Holdings 6.0

Downgrade to Neutral. We are downgrading Deleum to Neutral (previously Buy) with a revised target price of RM1.00 per share. Due to the delayed Maintenance, Construction and Modification (MCM) works coupled with lower than expected work orders from the P&M segment, we believe that the company’s share price could remain range bound for an extended duration. We roll forward our valuation base year to FY18 base on EPS18 of 11.1sen pegged to PER18 of 9x. Our target PER18 is premised on the company’s long term historical average rolling PER. At peak valuation, the stock traded at PERs in excess of 18x.

Source: MIDF Research - 24 May 2017