Analysts: Deleum’s niche services will remain key strength
KUCHING: Deleum Bhd’s (Deleum) niche slickline services, turbine repairs and integrated corrosion solutions will remain as its key strength going forward, analysts say, despite lowering its financial year 2019-2020 (FY19-20F) earnings estimates.
In its second quarter of FY19 (2QFY19) results review on Deleum, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) lowered its FY19 to FY20F earnings estimates by 13.2 per cent and 4.4 per cent to RM30.3 million and RM37.3 million respectively.
“We opine that margin compression on its Power and Machinery ( P&M) and Oilfield Services (OS) segments as well as; challenging operating environment for its OS segment will continue to drag earnings,” MIDF Research said.
To recap, Deleum’s profit attributable to equity holders of the company amounted to RM8.66 million in 2QFY19, down 5.6 per cent from the corresponding period of the previous year.
“This brings its first half of FY19 (1HFY19) earnings to RM11.5 million which makes up 32.8 per cent of our and 28.8 per cent of consensus’ full-year FY19F earnings estimate respectively.”
Post-earnings adjustments, MIDF Research downgraded its recommendation on Deleum to ‘neutral’, from ‘buy’ previously.
“We opine this is fair given that we do not foresee the margin compression for two of its segments, Plant and Machinery as well as OS to recover in the near future.
“Furthermore, its orderbook replenishment has been slower-than-anticipated which results in lower future earnings visibility.
“That said, we opine that Deleum’s niche in providing slickline services, turbine repairs and integrated corrosion solutions will remain as its key strength going forward which would place it at the forefront to win future contracts in these areas.”