Dialog’s 1QFY22 core net profit of RM125.3m (-2% QoQ, -3% YoY) came in within expectations at 22%/21% of our/consensus full-year forecasts. With the imminent ease of international travel restrictions in CY22, we see Dialog as a beneficiary as PDT will be able to welcome foreign clients and investors, potentially boosting Dialog’s downstream EPCC and midstream take -or-pay tank terminals business. We make no changes to our earnings estimates. Maintain BUY with a marginally lower TP of RM3.38/share (from RM3.45/share previously) after updating balance sheet items following the release of FY21 annual report.

Within expectations. Dialog reported a 1QFY22 core net profit of RM125.3m (after adjusting for RM3.6m gain on disposal of other investment) came in within expectations, at 22%/21% of our/consensus full-year forecasts. 1QFY22 core net profit was down -2% QoQ and down -3% YoY).

Dividends. No dividends were declared, as expected. Dialog typically announces its dividend payout in 3Q and 4Q.

QoQ. Revenue was down marginally by -3% QoQ while core profit declined by -2% and we believe that this was primarily due to the peak lockdown period in July-Aug 2021, resulting in lower revenues and higher operating expenses for its EPCC downstream business throughout the quarter.

YoY. Revenue was up 52% and this was primarily attributed to the contribution from its newly commissioned Dialog Terminals Pengerang 5 (DTP 5), which is part of its Phase 3A PDT project. We note that DTP 5 has a storage capacity of 430,000 m3 and is dedicated for BP Singapore Pte Ltd. However, core profit marginally declined by 3% and we believe that this is due to a few key reasons: (i) higher project costs; (ii) higher Covid-19 related operating expenses for its downstream business; and (iii) more project delays which affected its profit margins throughout the quarter.

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 Jan 2020. The construction works of the 430,000m³ storage capacity under Phase 3A of Pengerang Deepwater Terminals (PDT) was completed in March 2021 whilst, the 85,000m³ capacity expansion of Langsat 3 is slated for full completion by the end of CY21. With the imminent ease of international travel restrictions in CY22, we see Dialog as a beneficiary as PDT will be able to welcome foreign clients and investors, potentially boosting Dialog’s downstream EPCC and midstream take-or-pay tank terminals business.

Forecast. We Maintain Our Earnings Estimates.

Maintain BUY – marginally lower TP of RM3.38. We marginally reduce our SOP derived TP to RM3.38/share (from RM3.45/share previously) after updating balance sheet items following the release of FY21 annual report figures. Our TP of RM3.38 implies a 17% upside to current share price. Valuation wise, Dialog is currently trading at FY23F P/E of 26x, which is at about 20% discount to its pre-pandemic mean of 32x in 2019. We continue to like Dialog for its recurring income type of business model and we deem it as one of the only listed secular growth stock in the local oil and gas space.

Source: Hong Leong Investment Bank Research - 17 Nov 2021