Dialog Group Bhd
(Aug 17, RM1.95)
Maintain outperform with a target price (TP) of RM2.15: Dialog Group Bhd’s full financial year 2017 (FY17) net profit of RM370.6 million (+32.8% year-on-year [y-o-y]) exceeded consensus expectation at 117% of the estimate, though only meeting 86% of ours. The strong results continued to be driven by higher joint-venture contributions from the Pengerang Deepwater Terminal (PDT) projects underestimated by the consensus, but which we had overestimated, hence the miss on our part. Dialog’s activities in the Pengerang area will continue to ensure the delivery of even better results going forward with the near-commissioning of SPV3, the RM2.7 billion liquefied natural gas regasification facilities in which it has partnered with Petronas Gas Bhd and the Johor gtate. Dialog’s “outperform” recommendation is strongly reaffirmed, supported by our sum-of-parts-derived TP of RM2.15. We have adjusted our FY18 forecast (FY18F) to FY19F revenue and earnings to account for better contributions from its traditional businesses.
Its fourth quarter of FY17 ended June 30, 2017 revenue was RM968.9 million (+35.1% y-o-y; +6.1% quarter-on-quarter [q-o-q]) with earnings at RM103.5 million (+32.9% y-o-y; +9.7% q-o-q), underpinned by higher contributions from all divisions. Malaysia’s engineering, construction and fabrication activities’ ongoing works include PDT Phase 2, jetty topside works for Samsung in Pengerang and the construction of a plasticiser plant for UPC Chemicals in Kuantan. International operations comprise higher downstream activities in Singapore and Saudi Arabia. The group’s FY17 performance missed our earnings forecast, as we had assumed contributions from future projects slightly ahead of schedule on the associate level. We do believe our projections for FY18 onwards will be met considering the group’s delivery of its next milestone — SPV3 to be completed ahead of schedule.
To recap, our view on Dialog’s rerating is premised on: i) LNG regasification facilities (fourth quarter of calender year 2017 [4QCY17]) and the dedicated industrial terminal to Petronas (1QCY19) to commence operations at their respective stages; ii) Petronas’ unwavering commitment to downstream activities, in particular the Pengerang Integrated Petroleum Complex, which dispels any progress uncertainties; iii) the outlook for oil price stabilisation at US$50 (RM214.50); and iv) further upside from Pengerang, such as SPV4, and also the future phase to be revealed in the midterm and development of 600 acres (242.81ha) of total reclaimable land.
The current PDT Phase 1 and current construction of Phase 2 have led to the securing of new potential partners for Phase 3 — and to include the development of more petroleum and petrochemical storage terminals. PDT will provide more opportunities for the group to leverage on its core activities of engineering, construction, fabrication and plant maintenance services. — PublicInvest Research, Aug 17