KUALA LUMPUR: MIDF Research has initiated coverage on Deleum Bhd with a "Buy" recommendation and a target price (TP) of 96 sen.

MIDF Research said the financial year 2020 (FY20) to FY21 had been a challenging year for oil and gas (O&G) service providers due to the Covid-19 pandemic and volatile crude prices.

This had caused a slip in a five-year compound annual growth rate (CAGR) of 7.4 per cent.

"Despite this, Deleum maintains positive earnings since its debut in CY07," it said.

MIDF Research said Deleum continued to maintain a 50 per cent payout policy while remaining profitable since its listing in CY07.

The firm said Deleum's FY21 payout was one sen, giving it a 52 per cent net payout ratio.

"The company's latest payout was 1.12 sen of regular dividend in the first quarter (Q1) FY22.

"Moving forward, we expect the group to work towards maintaining its payout ratio within 50 per cent which should provide investors with a dividend yield of over 3 per cent by FY23 to FY24," it said.

According to MIDF Research, Deleum had been operating at an average price per earning ratio (PER) of 15 times  in the last five years.

From a book value perspective, Deleum has been trading circa price of book value (PBV) of 0.6 times as of current, despite an average PBV of 1.0 times in the last five 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 resilient and stable financial performance, focus on growth and expansion to new markets, and investments in new product lines," it added.