• We retain BUY on Dialog with an unchanged sum-of-parts (SOP)-based fair value of RM3.36/share. This implies a CY24F PE of 32x, broadly at par to its 5-year average of 31x and reflects a neutral ESG rating of 3 stars (Exhibit 2).

• Yesterday, Dialog officiated the expansion of its existing one-stop engineering and fabrication services plant in Pengerang, Johor. The plant is owned through a 49:51 joint-venture with HK-listed Morimatsu Technology and Service Company (Morimatsu).

• The expansion plan will mainly consist of module production workshops with a focus on manufacturing equipment and modules that are used to produce raw materials for electric vehicle (EV) batteries, semiconductors and green energy. It carries an investment value of RM250mil and is expected to come online in 1QCY25.

• According to the management of Morimatsu, overseas demand from EV, semiconductors and green energy sectors is seeing rapid growth and expected to drive the performance of the Morimatsu-Dialog JV with an annual revenue target of RM300mil.

• We are mildly positive on the development given its marginal impact on Dialog’s financials. Assuming a pretax margin of 8%, we expect the expansion will marginally increase by the group’s earnings by 1.2% for FY25F and 1.4% for FY26F. Additionally, we expect FY 25 net gearing to rise by 0.1% to 13.8% (from 13.7%).

• Dialog currently trades at an attractive CY24F PE of 20x, well below its 5-year mean of 31x. We believe Dialog deserves above-peer premium valuations given its longterm recurring cashflow generating businesses which are further underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing level.

Source: AmInvest Research - 8 Nov 2023