• Keep BUY, new TP of MYR2.79 from MYR2.85, 32% upside with c.2%FY24F (Jun) yield. Dialog’s 1QFY24 results are in line, with core earningsstrengthening by 6% YoY, backed by a ramp-up in its internationaloperations. We still expect Dialog to deliver 4-11% YoY earnings growth inFY24-26, on margin improvements. The stock is trading at 23x FY24F P/E,which is around -1SD from its 5-year mean of 27x.

• Results within expectations. At 25% and 24% of our and Street full-yearestimates, 1QFY24 core earnings of MYR138m (+19% QoQ; +6% YoY) arewithin expectations. No dividend was declared, as expected.

• 1QFY24 core earnings grew 19% QoQ to MYR138m after stripping offitems that include a MYR8m fair value loss on other investments, andMYR2m in FX gains. Revenue improved 13% QoQ while EBITDA rose 20%QoQ on a better product mix. The better performance was further anchoredby a better JV & associates contribution (+14% QoQ, stronger storageterminal contribution masking weaker Pan Orient Energy Corp numbers).YoY, core earnings also strengthened by 6% due to stronger profits from itsinternational operations – these, in turn, stemmed from higher specialistproducts and services revenue, a pick-up in EPC and plant maintenanceactivities in Singapore and New Zealand, as well as higher tank terminalcontribution.

• Outlook. We expect downstream activities to remain robust in terms ofengineering, construction and plant maintenance, and see an improvedoutlook for the fabrication and specialty products arm. Cost challenges andmargin pressures are likely to persist in the near term, but we expectmargins to improve YoY in the coming quarters following the tail-end ofcertain legacy projects. Occupancy levels and monthly storage rates forindependent terminals are still well sustained, at above 90% and aboveSGD6/cbm. We are also positive on the recently announced expansion planfor its jointly-owned fabrication facilities in Pengerang with an investmentvalue of MYR250m. It is expected to be completed by 1Q25, and has anannual revenue target of MYR300m. Meanwhile, Dialog’s maiden ventureinto specialty chemicals production could further diversify its earnings base– but earnings from this business could be rather volatile, depending onproduct spreads. We were guided that the project's IRR could be in doubledigits at least, with a payback period expected within 10 years.

• Still a BUY. While we maintain our estimates, our SOP-based TP drops to MYR2.79. Our TP also includes a higher 6% ESG discount, based on arevised ESG score of 2.7 (from 2.8 previously) as a result of another yearof increase in its total Scope 1 and 2 emissions in FY23. Downside risks:Weaker tank terminal rates and the slower-than-expected expansion ofPengerang Phase 3.

Source: RHB Securities Research - 15 Nov 2023