Dialog reported a 22.2% YoY drop in 2QFY21 core net profit to RM119.2m. This is attributed to a top line contraction of 42.7% YoY due to lower contributions from its upstream and downstream businesses, domestic and internationally. The performance was further exacerbated by weaker contributions from JV and associates mainly due to deferred tax provision for Dialog’s Pengerang Terminals Two. Cumulatively, the Group reported a 14.5% YTD decline in core net profit. The provision recorded caught many by surprise with 1HFY21 earnings only meeting ~40% of our and consensus full year projections. We trim our FY21 earnings forecast by 6.5% to account for weaker JV and associates’ contribution as a result, and an average of 4.2% for FY22/23 on profit margin adjustments particularly on the Group’s upstream and downstream businesses. This one-off provision aside, Dialog’s terminals based earnings remain intact. Our Outperform call on Dialog is affirmed with a revised TP of RM4.05 (from RM4.17 previously). We still like Dialog for its strong track record, defensive business model and steady recurring income generation from its tank terminal business.

• Results highlights. Weaker earnings in the quarter was attributed to i) lower contribution from the Group’s upstream segment i.e. production enhancement activities, oil development and prospect appraisal in Bayan oilfields in light of unfavourable oil prices, ii) lesser activities in the downstream segment i.e. specialist product and services, plant maintenance specifically under Petronas Master Service Agreement and catalyst handling due to slower economic activities globally, and iii) a 63% QoQ and 50.9% YoY decline in JV and associates contribution attributed mainly due to deferred tax provision for Dialog’s Pengerang Terminals Two of ~RM30m to RM40m. This resulted in 2QFY21 revenue and core net profit contracting by 42.7% and 22.2% YoY respectively.

• Terminals business running well. The one-off provision aside, Dialog’s terminals business is running well with stable utilisation rate of 90% - 100% and steady terminal rates due to higher demand. Tank terminal spot rates are up from SGD5–5.5/cbm pre-Covid levels to SGD6.5–7/cbm currently. In addition, FY21 will also see full contribution from Phase 1E’s 430,000 cbm storage and Langsat 3’s 120,000 cbm.

• To a better 2HFY21 and FY22. We see better earnings performance starting 2HFY21 on the back of oil price recovery, hence improving its upstream and downstream activities globally. FY21 will see full contribution from Phase 1E’s 430,000 cbm storage and Langsat 3’s 120,000 cbm. Its terminal segment will further expand (Phase 3 of PDT) with BP Singapore which is expected to commence commercial operations in mid-2021, as well as another 85,000 cbm storage capacity in the Langsat Terminal which is targeted for completion and ready for operations by the end of 2021.

Source: PublicInvest Research - 10 Feb 2021