INVESTMENT HIGHLIGHTS

• Deleum Bhd’s 4QFY18 earnings came in at RM7.5m

• FY18 earnings slumped by 15.8%yoy to RM27.2m

• Integrated Corrosion Solutions segment back in the red with a loss of -RM0.1m

• Second interim dividend of 2.25sen declared

• Earnings estimates maintained at this juncture

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

Earnings contracted by -44.4%yoy in 4QFY18. Deleum’s 4QFY18 reported earnings declined by -44.4%yoy to RM7.5m. This brings its cumulative earnings to RM27.2m which is below ours and consensus’ full-year earnings estimates respectively. This is due to weaker margins earned across its business segments. That said, revenue grew by +18.0%yoy premised on improved contributions across its business segments and strong revenue growth booked by Integrated Corrosion Solutions segment, particularly from its MCM project.

Power & Machinery. Segment revenue grew by +5.4%yoy attributable to: (i) stronger work orders for exchange engines; (ii) increased revenue from retrofit projects and; (iii) higher commission income earned on oil and gas projects. However, profit contracted by - 35.7%yoy due to: (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.

Oilfield Services. Segment revenue was flat year-over-year whilst profit slumped by -88.8%yoy due to lower margins from slickline activities and the continued weakness in the chemicals business.

Integrated Corrosion Solutions. Segment revenue surged by +120.8%yoy due to the additional revenue generated from the MCM services despite reduced contribution from Pan Malaysia Blasting Contract which expired in November 2017. That said, the segment suffered a loss of RM0.1m due to preparatory costs expensed to service the new contracts awarded in September 2018.

Second interim dividend of 2.25sen declared. Deleum declared a second interim dividend of 2.25sen during the quarter under review. This brings the total dividend declared for FY18 to 3.5sen which represents a 51% payout from its FY18 earnings. This also translates to a 2.7% yield to yesterday’s closing price.

Source: MIDF Research - 26 Feb 2019