Deleum Berhad: Navigating Earnings Volatility and Strategic Expansion in Southeast Asia's Valve Market

Deleum Berhad (KLSE: DELEUM) has presented a mixed earnings picture for Q2 2025, with revenue growth offset by margin pressures and strategic investments that could reshape its long-term trajectory. For investors weighing entry points, the question is whether the company's operational resilience and regional expansion justify overlooking near-term profitability declines.

Earnings Performance: Growth in Revenue, Compression in Margins

Deleum reported a 4.9% year-on-year revenue increase to MYR 236.88 million in Q2 2025, driven by sustained demand in its power and machinery segmentDeleum Berhad Announces Q2 2025 Financial Results^[1]. However, net income contracted by 12.4% to MYR 19.59 million, a decline attributed to foreign exchange losses and elevated operating expensesDeleum's 2Q profit dips despite higher revenue as forex losses drag^[2]. Profit margins fell to 8.3%, down from 9.9% in the prior-year period, while earnings per share dropped to MYR 0.049 from MYR 0.056Deleum Berhad Second Quarter 2025 Earnings: EPS: RM0.049^[3].

The discrepancy between the reported net income (MYR 19.59 million) and another source citing MYR 26.89 million remains unresolved. Analysts suggest this may stem from rounding conventions or differences in pre-tax vs. post-tax figuresDeleum Berhad Reports Earnings Results for the Second Quarter^[4]. Regardless, the consensus is clear: margin compression is a pressing concern. Deleum's management acknowledged this, citing higher costs in its power and machinery division as a drag on profitabilityDeleum Finalises US$7 Million PT OSA Acquisition^[5].

Strategic Moves: Regional Expansion and Market Positioning

Amid these challenges, Deleum's acquisition of a 70% stake in Indonesia's PT OSA Industries for USD 7 million (RM31.3 million) stands out as a pivotal strategic playAsia-Pacific Industrial Valves Market - Size & Revenue Share^[6]. This move strengthens its foothold in Southeast Asia's valve solutions market, a sector projected to grow at a 5.5% CAGR through 2033, fueled by oil and gas infrastructure and water treatment projectsIndonesia Industrial Valves Market (2024-2030)^[7].

The acquisition complements Deleum's existing operations, particularly its partnership with Baker Hughes valves in Malaysia. PT OSA's expertise in valve servicing and its profit guarantee of USD 2.7 million (RM12.1 million) for FY2024-2025 underscores confidence in its earnings potentialDeleum Completes Acquisition of PT OSA Industries Indonesia^[8]. By integrating PT OSA's capabilities, Deleum aims to enhance valve lifecycle management and leverage cross-border synergies between Malaysian and Indonesian teamsDeleum acquires Indonesia-based PT OSA to capture rising Valve Solutions demand^[9].

Market Dynamics and Long-Term Potential

Southeast Asia's valve market is a critical growth engine. Indonesia's industrial valves sector, for instance, is forecasted to grow at a 9.71% CAGR by 2027, driven by energy exploration and urban infrastructure projectsOil and Gas Valves Market Share, Trends, Drivers^[10]. Malaysia's push to drill 30 exploration wells in 2026 further amplifies demand for specialized valves in gas pipelines and sewage treatment facilitiesAsia-Pacific Industrial Valves Market - Size & Revenue^[11].

Deleum's focus on ball and gate valves—segments expected to dominate due to their use in high-pressure applications—positions it to capitalize on these trendsDeleum reports record financial results and drives strategic growth^[12]. However, success hinges on effective integration of PT OSA and Deleum's ability to mitigate forex and operational risks.

Investment Implications

For investors, Deleum's Q2 results highlight a company balancing short-term margin pressures with long-term strategic gains. While the decline in net income and EPS is concerning, the acquisition of PT OSA and the broader growth of Southeast Asia's valve market offer compelling upside.

The decision to invest should consider two factors:
1. Margin Resilience: Can Deleum stabilize its profit margins through cost optimization or pricing power? The company's dividend consistency (4.00 sen per share) suggests confidence in cash flow stabilityDeleum Berhad Announces Q2 2025 Financial Results^[13].
2. Synergy Realization: Will the PT OSA acquisition deliver the promised earnings contributions in H2 2025? Positive integration could unlock value, but execution risks remain.

In the current landscape, Deleum appears to be a “buy for the long term” rather than a short-term play. Investors with a 12-18 month horizon may find the valuation attractive, particularly if the company demonstrates progress in margin recovery and regional market penetration.