Undemanding Valuation. To recap, its exclusion from the KLCI on 18 Dec 2023, and MSCI index on 29 Feb 2024 triggered a significant sell-off from investors, leading to a 30.3% decline in DIALOG's share price from its 52-week high of RM2.47 to a low of RM1.72 before rebounding to RM2.11 yesterday. As a result of the share price route, DIALOG is currently trading at undemanding FY24f P/E of and 20x, respectively, which is approximately -1SD below its 5-year mean. This price decline presents an opportunity for investors to accumulate shares in anticipation of an earnings recovery for the group going forward.
Earnings improvement down the road. We anticipate the group's earnings recovery observed in the past two quarters to continue, projecting an 18.3% increase in FY24 core earnings to RM599m. This growth will be primarily fuelled by the diminishing loss impact from certain legacy downstream projects and a resilient performance in the oil storage segment. Notably, the sequential QoQ margin improvement witnessed in 2QFY24 is expected to persist in the coming quarters as legacy contracts gradually phase out by mid-CY24. Additionally, the storage rates for its independent terminals have remained steady at SGD6.50 per cbm, with utilization rate exceeding 90% (vs SGD5-6 per cbm with a utilization rate of 80+% in CY22). The ongoing geopolitical tensions and mounting concerns regarding energy security are anticipated to continue bolstering the oil storage markets.
All in, we maintain a BUY call on DIALOG with a TP of RM2.66, implying a potential upside of 26% from current level. We continue to like Dialog for its recurring income business model and its unique position in riding the future expansion of Pengerang via development of tank terminals. We look forward to the group securing new longterm dedicated storage tank terminal contracts for its PDT Phase 3 with approximately 500 acres available for future development.
Pending Flag pattern breakout. DIALOG is currently poised for a potential flag pattern breakout. A successful breach above the RM2.20mark is anticipated to signal the commencement of a new upleg, propelling the price towards the RM2.35-2.52-2.61 region. Cut loss at RM1.95.
Collection range: RM2.05-2.08-2.11
Upside targets: RM2.35-2.52-2.61
Cut loss: RM1.95
Source: Hong Leong Investment Bank Research - 8 Mar 2024
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