AmInvestment Research upgrades Dialog, sees stock benefiting from strong storage demand

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KUALA LUMPUR (May 15): AmInvestment Bank Research has upgraded its rating on Dialog Group Bhd to “buy” at RM3.33 with a higher fair value (FV) of RM3.80 per share. 

In a note today, the research house said the upgrade was due to it switching back to a sum-of-parts (SOP)-based evaluation method for Dialog's FV, which implies a financial year ending June 30, 2021 forecast (FY21F) price-earnings (PE) of 32 times – at parity to its five-year average.

The SOP method also saw the 650-acre (263.05ha) Pengerang buffer land valuation maintained at RM80 per square foot (psf).

Previously, Dialog’s FV was RM2.11 based on price-to-book value (P/BV) of three times.

“Dialog currently trades at calendar year 2021 forecast (CY21F) PE of 26 times – 17% below its five-year average of 32 times. We view its higher-than-peer premium as justified given Dialog’s long-term recurring cash flow-generating businesses, further underpinned by the Pengerang development’s multi-year value rerating bonanza and a healthy net cash balance,” said AmInvestment. 

AmInvestment maintained Dialog’s earnings forecasts due to the group’s cumulative core net profit for the nine months ended March 31, 2020 (9MFY20) being in line with its expectations and slight above the consensus, accounting for 72% and 76% of the full-year (FY20) earnings forecasts respectively. 

Against the backdrop of strong demand for storage facilities driven by the current oil glut, AmInvestment maintained a stronger FY21 earnings forecast for Dialog’s outlook, given the full-year contribution of fully utilised 1.3 million m3 storage facilities in Pengerang Phase 2, an additional 430,000m3 capacity from Phase 1 and Tanjung Langsat 3’s 120,000m3 tanks.

“Although maintenance services may be crimped by lower plant utilisation rates, Dialog’s expanded plant turnaround and maintenance work scope from Petronas’ five-year master service agreement still support longer-term earnings momentum,” the research house added. 

Yesterday, Dialog said its net profit for 3QFY20 rose 5.1% year-on-year (y-o-y) to RM151.04 million from RM143.71 million on the back of a better performance of its Langsat Terminals and Pengerang Independent Terminals (PITSB). However, quarterly revenue declined 20.61% y-o-y to RM505.34 million from RM636.61 million. It declared its first interim dividend for FY20 of 1.2 sen, payable on June 25.

For 9MFY20, net profit was up 19.88% y-o-y at RM473.69 million from RM395.13 million, though revenue fell 8.96% to RM1.76 billion from RM1.94 billion.

Dialog's share price has recovered to a level seen back on Dec 31, 2019 after it plunged to a 14-month low of RM2.80 on March 16.  At the noon break, Dialog's share price had risen 12 sen or 3.6% to RM3.45, bringing it a market capitalisation of RM19.6 billion. It saw some 3.93 million shares traded.