• We maintain BUY on Dialog Group with an unchanged sum-of-parts based (SOP) fair value of RM3.31/share, which also reflects an unchanged 3-star ESG rating. This implies a CY24F PE of 30x, slightly below its 5-year average of 31x.

• We fine-tuned our forecasts on expectations of a stronger earnings recovery from moderating maintenance and financing costs. Dialog’s FY23 core net profit (CNP) of RM507mil (excluding fair value/forex gains of RM26mil net of impairment losses of RM22mil) was below our expectation but within consensus, coming in 9% under our forecast and 3% of street estimates. However, the group declared a final dividend of 2.4 sen/share, which brought FY23 DPS to 3.7 sen that was 9% above our forecast.

• Sequentially, 4QFY23 CNP rose declined by 12% to RM116mil in tandem with a 14% revenue contraction to RM690mil. This stemmed from elevated costs for Malaysian downstream engineering, construction, fabrication and plant maintenance jobs which continued to be affected by inflationary pressures and manpower constraints.

• The group’s 50% equity stake in Pan Orient Energy (Siam), the Thai upstream operation acquired in Aug 2022, caused the share of Malaysian contribution to group pretax profit to drop to 40% in 4QFY23 from 86% in 4QFY22. Even so, we remain sanguine on the group’s long-term growth Pengerang prospects, underpinned by its abundant land banks which cover a remaining 500-acre zone, comprising reclaimable lands and adjoining buffer zones, that could double storage capacity, evidenced by new petrochemical operators planning to set up operations in the area.

• 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 cash flow-generating businesses which are further underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing levels.

Source: AmInvest Research - 16 Aug 2023