Deleum Bhd is expected to see improving earnings momentum in the second half of financial year 2026 (2HFY26), supported by the recovery of oil and gas activities, newly secured contracts and stronger contributions from its Oilfield Integrated Services (OIS) segment, according to HLIB Research.
The view followed a post-results meeting with Deleum Group CEO Ramanrao Abdullah, where management highlighted that the weaker first-quarter financial performance was partly expected due to seasonal factors, including the monsoon period and festive holidays.
For 1QFY26, Deleum’s revenue declined 39% quarter-on-quarter (QoQ), mainly due to weaker contributions from its Power & Machinery (P&M) segment, which fell 46% QoQ on lower sales of gas turbines, safety valves and flow regulators.
The OIS segment also recorded a 5% QoQ revenue decline, affected by softer solid control and maintenance, construction and modification (MCM) activities. However, stronger specialty chemicals contribution and stable slickline services helped cushion the decline.
Despite weaker revenue, OIS returned to profitability with a profit before tax (PBT) of RM4.5 million, compared with a loss before tax of RM7.4 million in the previous quarter, supported by improved margins and lower operating expenses.
Deleum’s core net profit fell 53% QoQ, impacted by higher finance costs and lower contributions from associates due to weaker liquid mud and dry bulk throughput.
On a year-on-year (YoY) basis, revenue increased 3% due to improved contributions from both P&M and OIS segments. However, core net profit declined 29% due to higher financing costs and lower share of associates’ earnings.
P&M Recovery Expected Towards End-FY26
HLIB said P&M activities are expected to remain soft in the second and third quarters of FY26, mainly due to lower valve supply, installation, repair and maintenance works.
The slowdown was largely attributed to delayed turnaround activities in Pengerang as refinery supply remained tight following disruptions linked to the Middle East conflict.
Nevertheless, the research house expects activities to gradually recover towards the end of FY26 and into early FY27.
Gas turbine-related revenue remains largely recurring, with maintenance and servicing activities contributing around 90% of segment revenue, while new package sales account for about 10%.
New Titan 250 package sales are expected to be supported by developments in the Kelidang, Sirung and Kikeh fields during FY26.
OIS Segment Seen as Key Growth Driver
Meanwhile, Deleum’s OIS segment is expected to remain the key earnings growth driver in 2HFY26, supported by stronger slickline services and improving MCM activities.
The group incurred around RM4 million in one-off start-up costs during 1QFY26 related to System Integration Testing (SIT) for newly secured slickline contract clients.
With the SIT phase completed, no further start-up costs are expected, while revenue contribution from these contracts is expected to begin between 3QFY26 and 4QFY26.
MCM activities, which declined 27% QoQ due to the monsoon season, are also expected to recover in the second half of the financial year.
Strong Orderbook Supports Outlook
Deleum’s orderbook remains resilient at RM2.4 billion, comprising 66% from the P&M segment and 34% from OIS, while its tenderbook stands at RM888.1 million.
HLIB noted that while near-term P&M activity may be affected by delayed turnaround projects in Pengerang, the impact is viewed as a timing issue rather than a structural slowdown.
The research house believes Deleum remains well-positioned to benefit from rising demand for gas turbines and well services, particularly in FY27.
Based on PETRONAS’ Activity Outlook 2026-2028, gas turbine supply packages are expected to increase in FY26, while hook-up and commissioning activities are projected to remain resilient through FY26 and FY27.
With Solar Turbines commanding more than 80% of Malaysia’s domestic gas turbine market, Deleum, as the exclusive local representative, is expected to benefit from increased demand for turbine servicing and commissioning-related works.
HLIB Maintains BUY Call with RM1.68 Target Price
HLIB maintained its BUY recommendation on Deleum with an unchanged target price of RM1.68, based on a mid-FY27 price-to-earnings valuation of 7.5 times.
The research house expects some turnaround projects in Pengerang may be deferred to FY27-FY28 due to stronger refined product demand under current market conditions.
Deleum’s dividend yield remains attractive, with FY26 estimated yield at 8.5%, supported by its 50% dividend payout policy.
The stock is currently trading at an undemanding valuation of about 4.4 times FY27 price-to-earnings, according to HLIB.
