Dialog’s 3QFY22 core net profit of RM131.9m (+1% QoQ, -3% YoY) and 9MFY22 core net profit of RM387.8m (+1% YoY) came in within our expectations (72% of full year forecast) but below consensus (68%). 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 also view Dialog as one of the only listed long-term secular growth stock in the local oil and gas space. Maintain BUY with an unchanged SOP-derived TP of RM3.32.

Within our expectations but below consensus. Dialog’s 3QFY22 core net profit of RM131.9m (+1% QoQ, -3% YoY) and 9MFY22 core net profit of RM387.8m (+1% YoY) came in within our expectations at 72% of our full-year forecasts but below consensus (68%).

Dividends. 1.3sen dividend was declared – within our expectations. Ex-date: 13 June 2022.

QoQ. Both revenue and core profit were up by 9% and 1% QoQ respectively and we believe that the improved performance was due to the general economic recovery as fears of Covid-19 slowly wanes off and less-stringent business SOPs throughout the quarter.

YoY. Revenue was up by 46% and this was primarily attributed to the contributi on 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, we note that core profit was down 3% YoY and we believe that this was due to the margin squeeze from its downstream EPCC business due to higher material price and labour costs.

YTD. Revenue was up by 51% but core profit was only up by 1%. We believe that the squeeze in profit margins was attributed to: (i) higher operating costs due to stringent Covid-19 related SOPs from its downstream business; (ii) higher material costs; and (iii) severe supply chain disruption which affected its profit margins.

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 430,000m³ storage capacity under Phase 3A of Pengerang Deepwater Terminals (PDT) was commissioned in Feb 2021. 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. Unchanged.

Maintain BUY – unchanged of RM3.32. Our SOP-derived TP of RM3.32, which implies a 46% upside to current share price. Valuation wise, Dialog is currently trading at FY23F P/E of 27x, 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 - 18 May 2022