Dialog’s core 1HFY18 results were in line with expectations, representing 50% of our and consensus FY18 forecasts. The higher revenue, coupled with better margins and associate profit helped drive up the overall net profit in 2Q. Our new target price of RM2.73 factors in some project extensions and potential capacity expansion. Maintain HOLD.

In Line With Expectations

Dialog booked in 2QFY18 headline net profit of RM115.8m (-28.1% qoq, +26.7% yoy). After stripping out the one-offs, which consist of RM1.1m forex gain and RM0.4m PPE disposal gain, Dialog core net profit stood at RM114.3m (+28.2% qoq, +28.2% yoy). This brings 1HFY18 profit to RM203.4m, which increased 37.5% yoy.

Malaysia Helps Offset Drag in International Operations

Malaysia operation recorded an 11% yoy rise in revenue as mid-todownstream activities picked up pace, which contributed to higher engineering, construction and plant maintenance services. Revenue boost also came from the consolidation of the Langsat terminal operations, which started this quarter. Both of these helped to partly mitigate the challenging international operations as sales of specialist products from India, Russia, Australia, and lower engineering and construction activities in Singapore, Australia and New Zealand, became a drag.

Tweak Earnings Slightly Post Housekeeping

We tweak our 2018-20E earnings slightly by 1-2% post some housekeeping on a few balance sheet items and adjustments to our capex assumptions.

Maintain HOLD and Lift TP to RM2.73

We raise our TP to RM2.73 (from RM2.30) as we roll forward our valuation to FY19 and to reflect the following changes: (i) assume 20 years extension on the Kertih plant which will be expiring in 3 years time, and (ii) assume an additional 570k cm³ expansion for PDT Phase 1 (on top of the current 430k cm³ being developed) and potential 1m cm³ expansion on PDT Phase 3 (factored in with a 25% stake assumption).

Source: Affin Hwang Research - 14 Feb 2018