Dialog’s 4Q21 core profit of RM128m (-6% QoQ, -18% YoY) brought FY21’s sum to RM513m (-14% YoY). The results came in within ours’ and consensus’ expectations, at 99%/96% 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 maintain our BUY call at an unchanged TP of RM3.45.

Results within expectations. Dialog reported 4Q21 core net profit of RM128m (-6% QoQ, -18% YoY) bringing FY21’s sum to RM513m (-14% YoY), which was in-line with our (99%) and consensus’ expectations (96%). FY21’s core profit was derived after adjusting for -RM30.7m of EIs, mainly comprising of -RM17.1m of gain on disposal of PPE and -RM6.0m of fair value gain on investments.

Dividends. Final dividend of 1.9sen/share will be recommended for the year at the forthcoming AGM, bringing FY21 DPS to 3.1sen/share (unchanged vs SPLY).

QoQ: Core profit declined by -6% primarily due to the tougher business environment from the resurgence of Covid-19 cases during the quarter, mitigated by growth in sustainable income from its tank terminal business.

YoY: Core profit declined by -18% due to lower EPCC contribution, mitigated by higher associate contribution and sustainable income from its tank terminal business.

YTD. Core profit declined by -14% 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.

Maintain BUY at unchanged TP of RM3.45. We maintain our SOP-driven TP of RM3.45 as we believe that this is a good opportunity to BUY into Dialog. Its recurring income is expected to improve with the commencement of PDT Phase 3A and Langsat 3 despite impending revenue declines due to the declines in EPCC revenue from the completion of the aforementioned projects. 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. Dialog has fallen by more than 30% from its 1 year peak in November 2020.

Source: Hong Leong Investment Bank Research - 20 Aug 2021