1QFY17: No surprise in earnings

Dialog’s 1Q17 results came in at 20% of our full-year estimates but historically 1Q has been weak due to seasonality before higher earnings contribution in the remaining quarters. Malaysia business continues to be brisk, thanks to EPCC work from Dialog’s ongoing projects coupled with a robust Pengerang tank terminal contribution. We reduce our FY17-19 earnings forecasts by 3.1-3.3%. Maintain HOLD with higher TP of RM1.61 after rolling forward our valuation date.

Core net profit declines 4.7% qoq, but grows 31.6% yoy

Dialog delivered another set of strong results, with 1Q17 revenue of RM653.6m and net profit of RM81.3m. Excluding a gain on PPE disposal made in 1Q17, core net profit amounted to RM63.4m. Revenue increased by 21.8% yoy to RM653.6m as the Malaysia and Singapore operations posted better performance which mitigated the decline in Australia, New Zealand and other regions. Malaysia region continues to see brisk activities, driven by EPCC work from Pengerang Deepwater Terminal (PDT) Phase 2, jetty topside work for Samsung and bullet tanks for Toyo. That said, weaker sales in specialist products and services and slower upstream activities continued to be a drag on Dialog’s earnings. In tandem with improved revenue, core net profit grew 31.6% yoy as share of joint venture profit doubled from RM12.1m to RM25.1m, driven primarily by PDT, which was fully leased out. The effective tax rate was lower at 15% vs. 22.4% in 1QFY16.

Robust tank terminal business despite challenging environment

As a quick recap, share of joint venture profit recorded an 11-fold rise from RM5.7m to RM70.8m in FY16 as Pengerang terminal storage has been fully leased out since September 2015. Its Malaysia operations, particularly in the mid to downstream, should remain robust, with growth underpinned by the group’s robust tank terminal business as well as ongoing Pengerang Phase 2 construction activity

Source: Affin Hwang Research - 23 Nov 2016