Dialog’s FY20 results came within expectations led by solid core businesses performance (EBITDA: +11% YoY) and higher contributions from JV & associates (+34% YoY). The company will continue to be amongst the key beneficiaries of Pengerang’s development due to its exposure in tank terminals, EPCC and maintenance services. Earnings unchanged as results are within expectations constituting 99.4% of our estimates. Reiterate our BUY rating on the stock with unchanged TP of RM4.23.

Results within expectations. Dialog reported 4QFY20 results with revenue of RM505.4m (+7% QoQ, +20% YoY) and core earnings of RM156.7m (+4% QoQ, +12% YoY), which brought 12MFY20 core earnings to RM598.6m (+12% YoY). The latter accounted for 99.4%/102.6% of our/consensus full year estimates. Declared final dividend of 1.9 sen/share (vs 2.3sen/share SPLY; ex-date: TBC) bringing total dividends declared for the year to 3.1 sen/share (vs 3.8sen SPLY). Lower dividend was declared to conserve cash in view of the challenging economic environment and current investment opportunities

QoQ: Revenue increased by 7% QoQ on the back of stronger contributions from Malaysian, which saw higher contributions from Dialog Terminals Langsat 1, 2 and 3 and PITSB. Core profit for the quarter was up marginally (+4% QoQ) despite the challenging economic environment.

YoY: Revenue improved by 20% on the back of improved contributions across its terminal businesses (maiden contributions from Langsat 3 terminals) and higher O&M works YoY. Note that Langsat 3 terminals commenced full operations for its 120,000 m3 storage facility in January 2020. Consequently, 4QFY20 core earnings increased by 12% YoY underpinned by (i) better performance from its core businesses on better revenue mix and (ii) higher JV & associates contribution (+6% YoY on improved contributions from PITSB phase 1E).

YTD: Revenue declined by -3% YoY in line with the shift in their revenue mix (in FY19 revenue was largely from EPCC; however in FY20 revenues are largely from plant maintenance (Malaysia revenues declined by c.20% YoY). EBITDA managed to improve by +11% on improved contributions across the group’s terminal business. Consequently, core earnings improved by +12% YoY from RM534.5m despite higher depreciation (+50%) and finance costs (+11%), thanks to (i) leap in JV contributions of +34% YoY, and (ii) to a lesser extent a lower effective tax rate of 13.3% (-2.1ppts YoY).

Outlook. Dialog will continue to be one of the key beneficiaries of Pengerang’s development due to its exposure in tank terminals, EPCC and maintenance services. In addition to Dialog Terminals Langsat 1 and 2 with a total capacity of 650,000 m3, Langsat 3 has commenced full operations for its 120,000 m3 storage facility in January 2020. Dialog plans to expand Terminals Langsat 3 into a 300,000 m3 storage facility, in line with their strategy to grow sustainable and recurring income.

Forecast. Unchanged as earnings are within expectations.

Maintain BUY, TP: RM4.23. We keep our SOP-driven TP at RM4.23 and maintain our BUY call on the stock. We expect earnings for Dialog to continue to improve despite challenging economic conditions and its satisfactory 4QFY20 results is a testament towards the sustainability and defensiveness of its business model.

Source: Hong Leong Investment Bank Research - 19 Aug 2020