Stock Name: DIALOG
Company Name: DIALOG GROUP BHD
Research House: CIMB

Dialog Group Bhd
(Nov 23, RM1.44)
Maintain underperform at RM1.44 with revised target price of RM1.10 (from 95 sen): Dialog's 1QFY11 net profit beat our expectations by coming in at 28% of our full-year forecast, though it was broadly in line with consensus estimates at 22%. We had underestimated contributions from the plant maintenance business. Assuming higher contributions from the plant maintenance business and operations at the Tanjung Langsat terminal (TLT), we raise our EPS forecasts by 4.8% for FY11, 19% for FY12 and 19.6% for FY13. The earnings upgrades and the rollover of our target price to end-CY11 increase our target price from 95 sen to RM1.10, pegged to our revised target market PER of 13.8 times (15 times previously). Dialog remains an 'underperform', with the potential downside triggers being: (i) a slowdown in engineering and construction order book replenishment; and (ii) delay in the Pengerang project. Our top oil and gas pick is SapuraCrest.

In 1QFY11, revenue fell 15% year-on-year (y-o-y) following the completion of major engineering and construction projects in Malaysia and Asia-Pacific. However, net profit rose 23% mostly due to higher contributions from two divisions: (i) Plant maintenance: The division has about RM100 million orders on hand currently and has completed significant works in Malaysia and Singapore; (ii) Centralised tankage facilities: Terminal 1 of TLT started its Phase 1 operations in September 2009 with a capacity of 130,000m''. The 270,000m'' capacity at Phase 2 has been utilised since last April.

Dialog has started work on the RM80 million construction of Terminal 1's Phase 3 (capacity: 80,000m'') and RM180 million construction of Terminal 2 (capacity: 180,000m''). The construction is expected to be completed by end-CY11. Dutch trader Trafigura is both a partner and a client, ensuring long-term commitment and consistent utilisation.

In June 2009, Dialog and the Johor government signed a memorandum of understanding to set up an independent deepwater petroleum terminal in Pengerang. Last month, the state government awarded Dialog exclusive rights to develop the terminal for a 60-year period. We have yet to include its potential contribution in our forecasts. Using the Kertih facility as guidance, we estimate that pre-tax contribution from Pengerang may be no less than RM30 million per year. Dialog is now working on the environmental assessment, which is slated to finish by early CY11. 'CIMB Research, Nov 23


This article appeared in The Edge Financial Daily, November 24, 2010.