Dialog’s 3Q21 core profit of RM136.3m (+14% QoQ, -10% YoY) brought 9MFY21’s sum to RM385.3m (-13% YoY). The results came in within ours’ but below consensus’ expectations, at 75%/66% of our/consensus’ full year estimates. We believe that Dialog’s share price has bottomed. Despite our expectations on lower EPCC revenue going forward due to the lack of terminal expansion plans in the pipeline, the growth in recurring income from newly completed projects would be able to sustain its earnings going forward. Hence, we upgrade our Hold call to a BUY at an unchanged TP of RM3.45.

Results within expectations. Dialog reported 3Q21 core net profit of RM136.3m (+14% QoQ, -10% YoY) bringing 9M21’s sum to RM385.3m (-13% YoY), which was in line with our expectations (75%) but below consensus’ (66%). 9M21’s core profit was derived after adjusting for (i) forex gain of -RM7.8m and (ii) gain on disposal of PPE amounting to -RM12.0m.

Dividends. First interim dividend of 1.2sen/share was declared for the year (unchanged vs SPLY). Ex-date: 14 June 2021; payment date: 29 June 2021.

QoQ: Core profit improved by 14% primarily due to higher contributions from its JV and associates.

YoY: Revenue and core profit declined by -20% and -10% respectively due to lower EPCC contribution and associate income.

YTD. Core profit declined by 13% YoY mainly due to lower EPCC revenue and contribution due to lower expansion works for its tank terminals.

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’s 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. The construction works of the 430,000m³ storage capacity under Phase 3A of Pengerang Deepwater Terminals was completed in March 2021 whilst, the 85,000m³ capacity expansion of Langsat 3 is slated for full completion by the end of CY21.

Nevertheless, Dialog has not announced its expansion plans post Phase 3A Pengerang Deepwater Terminals and Langsat 3, which is a leading indicator towards lower EPCC revenue in the near future. While Dialog still possesses ample land for expansion, we believe that it will slow down on the expansion of its tank terminal business after the aforementioned expansion projects are completed due to the current uncertainty with regards to the PRefChem project by Petronas and Saudi Aramco. However, the commissioning of the extra capacity from the aforementioned tank terminal expansions are expected to add towards Dialog’s recurring income.

Forecast. No Changes.

Upgrade to BUY with unchanged TP of RM3.45. We maintain our SOP-driven TP of RM3.45 but upgrade our call from a Hold to a BUY as we believe that share price has bottomed. Despite the absence of an indication towards its expansion plans due to the uncertainties surrounding the PRefChem project, its share price has decreased by almost 25% from its peak in November 2020. We believe that its growth in its recurring income through its tank-terminal business is enough for us to warrant a BUY call on the stock.

Source: Hong Leong Investment Bank Research - 20 May 2021