KUALA LUMPUR (Aug 19): MIDF Research has maintained its "buy" rating of Dialog Group Bhd at RM3.66, with a higher target price (TP) of RM4.11 from RM3.83 previously, and said the stock is still its top pick for the oil and gas (O&G) sector due to its stable recurring income, front-line benefits from Petroliam Nasional Bhd's (Petronas) Refinery and Petrochemical Integrated Development (RAPID) operations, as well as its growing tank farm business.
In a note today, the research house said Dialog’s net profit for the financial year ended June 30, 2020 (FY20) exceeded its estimate at 106.8% and the consensus estimate at 108%.
Its earnings for the fourth quarter ended June 30, 2020 (4QFY20) surged to RM156.7 million, representing an 11.4% year-on-year (y-o-y) growth, mainly attributed to an improved performance of its local Malaysian operations, which saw higher contributions from the terminal business, namely Dialog Terminals Langsat 1, 2 and 3 as well as Pengerang Independent Terminals Sdn Bhd (PITSB), said MIDF Research analyst Noor Athila Mohd Razali.
Notably, the quarter saw an increased contribution from Dialog Terminal Langsat 3’s full commissioning of its 120,000-cubic metre (cbm) storage facility, which was only partially commissioned back in August 2019, the analyst said.
“In addition, SPV Phase 1E’s 430,000cbm was also fully commissioned at the end of 2019. This brought the total storage capacity of Dialog Terminals Langsat 1,2 and 3 as well as PITSB to 770,000cbm and 1,780,000cbm respectively.
“We understand from management that these storage capacities are currently fully leased out, and the rates have also increased by 30% to 40% recently due to increased demand for storage facilities arising from low oil prices,” Noor Athila said.
Additionally, earnings coming from Dialog’s joint-venture (JV) tank farm business surged 45% to RM74.1 million for the quarter, compared to the corresponding period last year, boosted mainly by Pengerang Terminals (Two) Sdn Bhd (PT2SB).
She added that though Dialog’s international operations experienced a revenue growth of 9.6% y-o-y, profit contracted, mainly dragged by the Middle Eastern operations which saw earnings plummet 33.3% compared to a year earlier.
“The decline was attributable to reduced supply base activities in Saudi Arabia, and lower margins earned from specialist products and services sales as well as engineering and construction activities performed,” she said.
Following the stellar set of results, the research house raised its FY21 earnings forecast for Dialog by 7.5% to RM613.2 million, from RM570.5 million projected previously, taking into account better margin recognition across the latter’s business segments.
“Our 'buy' recommendation is premised on our expectations of an increase in contribution coming from its growing tank farm business with the completion of SPV Phase 1E’s 430,000cbm, which we understand was fully commissioned in 4Q19 (the fourth quarter of 2019).
“In addition, we also expect its earnings to be boosted by the full commissioning of Dialog Terminal Langsat 3’s first 120,000cbm, which was fully commissioned back in January 2020,” Noor Athila said.
She added that the group’s bottom line will continue to be on a positive growth trajectory going forward, with the completion of Pengerang Deepwater Terminals (PDT) Phase 2 and the refineries in RAPID as well as the recently-awarded group-wide master service agreement from Petronas.
Dialog shares stood seven sen or 1.91% higher at RM3.73 at 9.55am today, valuing the group at RM20.64 billion, with around 590,600 shares traded.