- We reiterate our BUY recommendation on Dialog Group with an unchanged fair value of RM2.05/share, based on our sum-of-parts valuation, which implies a CY15F PE of 36x.

- Dialog reported 4QFY15 net profit of RM63.6mil, bringing total FY15 earnings to RM275.1mil. This is in line with our estimates but above consensus’ by 8%. The group also declared a final dividend of 1.2sen/share, bringing total to 2.2sen for the year.

- FY15 net profit grew by 28% YoY mainly from its Malaysian operations due to:- (i) recognition of profits from the engineering and construction works for the Pengerang Deepwater Terminal (PDT); and (ii) contributions from the Production Sharing Contract (PSC) for the D35, D21, and J4 fields located offshore Sarawak since Sept 2014.

- This was partially offset by the weaker international operations (revenue declined by 18% YoY) due to low engineering, construction and plant maintenance activities in Singapore; less fabrication jobs in Australia and New Zealand; and lower sales of specialist products and services in other regions.

- The 1.3mil m3 of storage capacity of PDT Phase 1 is fully leased out, serving more than 200 vessels, including supertankers, since it came into operations. The demand for storage facilities is expected to remain elevated as the current low oil prices present a good opportunity for traders to lock in at the current level.

- The group has also commenced EPCC works on PDT Phase 2. The Phase 2, a dedicated industrial tank terminal catered for the RAPID complex, is due for completion by mid-2018, while the LNG regasification plant and storage tanks will be completed by end-2017.

- The RM5.5bil EPCC contract for the construction of Pengerang Phase 2 will keep its fabrication and engineering & construction divisions busy and further support the group’s earnings over the next three years.

- Dialog has also recently set up a fabrication facility in Pengerang to enable it to capture opportunities provided by RAPID. It is currently being developed on a 118-acre land adjacent to PDT.

- Currently, Dialog is trading at a CY15 PE of 27x, above the sector’s average of 15x. We believe the premium is justified given Dialog’s recurring and strong cashflow generating businesses, which are relatively insulated from the near-term fluctuations of crude oil prices.

Source: AmeSecurities Research - 21 Aug 2015