KUALA LUMPUR (July 5): MIDF Research has initiated coverage on Deleum Bhd at 55 sen with a Buy recommendation and a target price (TP) of 96 sen per share and said FY20-21 had been a challenging year for oil and gas service providers due to the Covid-19 pandemic and volatile crude prices, causing a slip in a 5-year CAGR of -7.4%.

In a note on Tuesday (July 5), the research house said despite this, Deleum  maintained positive earnings since its debut in CY07.

It said Deleum continues to maintain a 50% payout policy while remain profitable since its listing in CY07.

The research house said Deleum’s FY21 payout was 1 sen, giving it a 52% net payout ratio.

“The group’s latest payout was 1.12 sen of regular dividend in 1QFY22.

“Moving forward, however, we expect the group to work towards maintain its payout ratio within 50% which should provide investors with a dividend yield of over 3% by FY23-24,” it said.

MIDF said Deleum had been operating at an average PER of 15x in the last 5 years.

It said from a book value prespective, Deleum has been trading circa PBV of 0.6x as of current, despite an average PBV of 1.0x in the last 5 years.

“Hence, we believe that Deleum may be undervalued at current juncture and we opine that the group has the potential to trade at a higher valuation.

“This is based on the company’s: (i) resilient and stable financial performance, (ii) focus on growth and expansion to new markets, and (iii) investments in new product lines,” it said.