CEO Morning Brief

Dialog Shares Test 15-month High on Strong 3Q Results

Publish date: Wed, 15 May 2024, 10:29 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (May 14): Shares of Dialog Group Bhd (KL:DIALOG) hit a 15-month high on Tuesday after the company's third-quarter results came in slightly stronger than expected while analysts broadly told investors to accumulate the stock.

Dialog rose over 2% to RM2.54, its highest since February 2023. The stock closed at RM2.48 at the closing bell on Tuesday, valuing the oil and gas services firm at RM14 billion, after some 12.53 million shares changed hands. Meanwhile, the benchmark FTSE Bursa Malaysia KLCI was 0.19% higher.

Core net profit for the nine months ended March 31, 2024 accounted for 77% of consensus full-year estimate. Analysts are betting that Dialog’s downstream business — which reported losses in the latest quarter — will improve and boost the company’s fortune in the next financial year.

“We expect revenue from the downstream segment to trend higher going forward on the back of new contracts and new rates to cater for the current high cost environment,” said RHB Investment Bank. “Margins are also likely to improve as legacy contracts slowly phase out by the end of FY2024.”

Shares of Dialog have gained over 20% so far this year, amid a broad rally in the energy sector, as oil prices stay elevated. Brent, the global benchmark for crude oil, mostly remained above US$80 per barrel so far this year.

A large majority of 12 out 15 analysts covering Dialog have ‘buy’ calls on the stock while the remaining three have ‘hold’ ratings. The consensus 12-month target price is RM2.77, a potential return of another 10% from its last price.

Storage rates for Dialog, Southeast Asia’s second-largest independent terminal owner in terms of capacity, will likely stay steady at S$6.50 (RM22.71) per cubic metre while occupancy is expected to stay above 90%, thanks to heightened geopolitical tensions and energy security concerns, said RHB Investment Bank.

“We believe that Dialog’s upstream and midstream operations would continue to benefit from higher demand for engineering and specialist services in field projects in the near term, as well as the higher demand for storage capacity to contain cleaner energy products,” said MIDF Amanah Investment Bank.

On its part, Dialog said the company will continue to invest in phased capacity expansions for long-term customers across the midstream terminals portfolio.

In the downstream segment, Dialog said it will conduct thorough risk assessments for new projects and “strategically pursue opportunities” while being cautious and selective, particularly in the bidding process for lump-sum engineering, procurement, construction and commissioning contracts.

Source: TheEdge - 15 May 2024

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