- We maintain our HOLD call on Dialog Group with an unchanged sum-of-parts value of RM1.52/share, which implies a CY15F PE of 26x.

- We maintain Dialog’s FY15F-FY17F net profits even though the group’s 1QFY15 earnings appeared to be weak, accounting for 19% of our full-year estimates and 18% of consensus’.

- We expect earnings in the subsequent quarters to be stronger, supported by contributions from Phase 1B of the Pengerang Independent Terminal (PIT) that is currently being commissioned for start-up and Phase 1C that is due for mechanical completion by the end of the year.

- Dialog’s 1QFY14 revenue slid by 6% YoY as the group experienced a slowdown in engineering, construction and plant maintenance activities in Singapore (-57% YoY) and fabrication jobs in New Zealand (-40% YoY).

- This was partially offset by higher revenue for its Malaysia operations (+8% YoY) mainly due to contributions from:- (i) the PSC for the D35, D21 and J4 fields, following the completion of the farm-out agreement with ROC Oil for a 20% participating interest during the quarter; and (ii) engineering and construction (E&C) activities for PIT.

- With better margins for the upstream activities in Malaysia and logistic and supply base activities in Jubail, Saudi Arabia, the group’s 1QFY15 net profit increased by 5% YoY.

- For now, the main near-term earnings catalyst for the group stems from its PIT project, as Dialog’s executive chairman Tan Sri Dr Ngau Boon Keat has said that its investments could reach RM16bil over the next 15 years.

- With the recent approval of the final investment decision of the LNG facilities recently, we expect the construction plans of the next phase for PIT to be expedited over the next few months.

- The construction of the oil storage facility for the next phase is targeted to be completed by mid-2018, where the bulk of the capacity will be catered to the Refinery and Petrochemical Integrated Development (RAPID).

- The stock currently trades at a fair FY16F PE of 26x, compared with its 3- year average of 30x.

Source: AmeSecurities