Deleum: Earnings Recovered

Results Update

For QE30/6/2019, Deleum returned to profitability after it went into the red in the immediate preceding quarter, QE31/3/2019. It reported a net profit of RM8.7 million as compared to a net loss of RM1.80 million reported in QE31/3/2019. As compared to last year, net profit dropped 5.6% on the back of a 52%-increase in revenue to RM212 million.

Net profit rebounded back q-o-q basis due to stronger segment contributions from both Power and Machinery and Integrated Corrosion Solution segments, offset by lower results from Oilfield Services segment due to margins compression for its slickline services. Share of results of joint venture, which was contributed by the overhaul and repairs of gas turbines, dropped slightly from RM394k to RM356k due to higher overhead expenses incurred on repair and maintenance works in the current quarter. Share of results of associates increased by RM0.2 million as a result of stronger contribution recorded from 2MC in both its dry bulk and liquid mud businesses in the current quarter.


Table: Deleum's last 8 quarterly results 


Graph: Deleum's last 51quarterly results

Financial Position

Deleum's financial position weakened as at 30/6/2019, when compared to last year. Its current ratio dropped from 1.9 times to 1.5 times while total liabilities to equity rose from 0.6 time to 0.9 time. The deterioration in financial position warrants greater caution on this stock.

Valuation

Deleum (closed at RM0.82 yesterday) is now trading at a PE of 14 times (based on EPS of 5.85 sen for the past 4 quarters). At this PER, Deleum is deemed fair. Dividend payment has dropped from 4.5 sen to 3.65 sen- giving the stock a still-decent dividend yield of 4.45%.

Technical Outlook

Deleum share price is resting on the line connecting its lows for the past 10 years. The indicators are fairly weak. If this support is broken, Deleum may revisit the low of July 2017 at RM0.75.


Chart 1: Deleum's monthly chart as at Aug 23, 2019_12.30 (Source: Malaysiastock.biz)


Chart 2: Deleum's weekly chart as at Aug 23, 2019_12.30 (Source: Malaysiastock.biz)

Conclusion

With the improved financial performance and fair valuation, balanced against the weaker financial position & poor technical outlook, I would rate Deleum as a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.