INVESTMENT HIGHLIGHTS

• Deleum Bhd’s 3QFY18 earnings came in at RM9.1m

• 9MFY18 earnings higher by +4.6%yoy

• Integrated Corrosion Solutions segment recorded turnaround profit of RM0.2m

• Earnings estimates maintained in anticipation of a stronger 4QFY18

• Maintain BUY with unchanged TP of RM1.39 per share

Earnings recovery sustained in 3QFY18. Deleum’s 3QFY18 reported earnings declined by -15.6%yoy to RM9.1m. Despite recording cumulative earnings below our full-year earnings estimate, its 9MFY18 of RM19.7m was +4.6% higher year-over-year. We remain optimistic that earnings for Deleum will continue to be buoyed by high activity levels in 4QFY18 given that it is generally a stronger quarter operationally for Deleum.

Power & Machinery. Both segment revenue and profit contracted by -26.3%yoy and -24.3%yoy respectively attributable by: (i) softer demand for valves and flow regulators and; (ii) a lower volume of turbine related work orders for exchange engines and ancillary parts and services. This was however, offset by higher orders for retrofit projects.

Oilfield Services. Segment revenue increased by +7.5%yoy due to higher revenue from slickline services of RM5.0m. That said, segment profit was reduced by -34.4%yoy due to downward pressure on margins which was partially mitigated by reduced finance costs due to lower borrowings.

Integrated Corrosion Solutions. Segment revenue surged by +311.9%yoy due to the additional revenue generated from the MCM services despite reduced contribution from Pan Malaysia Blasting Contract which expired in November 2017. Furthermore, the segment staged a turnaround with a profit of RM0.2m during the quarter after two consecutive quarters of losses.

Impact on earnings. We are making no changes to our earnings estimates at this juncture as we expect Deleum’s 4QFY18 earnings to come in stronger premised on noticeable increase in activity levels driven by stronger crude oil price. Furthermore, with the turnaround of its Integrated Corrosion Solutions and recently secured contracts for the segment, we opine that it will contribute more positively in 4QFY18.

Maintain BUY. We are maintaining our BUY recommendation on Deleum with an unchanged target price of RM1.39 per share. Our TP is premised on PER19 of 12x pegged to EPS19 of 11.6sen. At peak valuation, the stock traded at PERs in excess of 18x.

Source: MIDF Research - 21 Nov 2018