- We maintain our BUY call on Dialog Group (Dialog), with an unchanged sum-of-parts-derived fair value of RM3.55/share, which implies a FY14F PE to 27x - a 10% premium to its threeyear average, but below its peak of 40x in 2007.

- We have slightly tweaked Dialog’s FY14F-FY15F net profits as its FY13 earnings of RM193mil came in within our and street’s estimates. We introduce FY15F earnings with a growth of 21% driven by the group’s pipeline of tank terminal projects.

- Dialog’s 4QFY13 earnings rose by 12% to RM52mil, driven by higher contribution from overseas specialist products and services, coupled with a turnaround in earnings to RM4mil (from a loss of RM8mil in 3QFY13) from the group’s Singapore operations. This was partly offset by lower associate contributions due to start-up costs for its Pengerang Phase 1, Balai risk-sharing contract and Bayan enhanced oil recovery projects.

- YoY, the group’s FY13 revenue rose by 37% to RM2.2bil but net profit grew at a slower rate at 9% due to a 1.7%-point EBITDA contraction to 11%. This stemmed largely from losses arising from the Singapore job as well as lower construction margin from the Pengerang engineering, procurement and construction contract.

- We remain positive on Dialog’s prospects despite the delay in Petronas’ final investment decision (FID) for the Refinery and Petrochemical Integrated Development (RAPID) in Pengerang to 1Q2014. Besides land acquisition issues, the massive project, which covers 4,000 acres, requires extensive planning with Petronas’ co-investors and technical partners.

- But we note that Dialog’s fabrication for the first phase on the Pengerang Deepwater Terminal encompassing 1.3mil cu metres of tank terminal capacity may likewise be delayed as management has indicated that the operational date may be in 1H2014, slightly deferred from early 2014.

- The subsequent Pengerang Phase 2 and LNG terminal has yet to be launched, pending Petronas’ FID for the RAPID project. But we understand that Dialog’s land reclamation for Phase 2 Tank Terminal development is quite extensive, and is expected to be completed by the end of this year.

- All 5 appraisal wells in the Balai pre-development phase have yielded positive results and the consortium is sending the Balai Mutiara to test the completed wells. But the submission of development plans appears to be delayed until the end of the year.

- The group’s 50:50 joint-venture with Halliburton Energy Services has also commenced operations to redevelop the matured Bayan oilfield off-Sarawak, but management is unable to provide guidance on the scale and timeline of contributions to Dialog at this stage.

- The stock still trades at an attractive FY14F PE of 24x, below its 2007 peak of 40x

Source: AmeSecurities