Revenue Slow; Overall Margins Held Up

Dialog reported a 1QFY19 core PATAMI of RM114.3m (+28% yoy) which tracked within our and consensus expectations. Despite a weaker topline, margins held up to support earnings. We adjust our target price marginally to RM3.27 but reiterate our HOLD rating post housekeeping adjustments.

Revenue Slowed as EPCC Reaches Tail-end

1QFY19 core PATAMI achieved 25% and 24% of our and consensus estimates. Overall 1QFY19 revenue recorded a 11% contraction, dragged down by the Malaysia operations. We expect such trend to continue as Pengerang Deepwater Terminal (PDT) Phase 2 EPCC works gradually reach completion by early 2019. Nevertheless, overall margins may likely get supported, as seen in recent quarters’ results due to the Langsat terminal consolidation and we suspect that tail-end EPCC works also garner better margins.

Higher Oil Price Helped Support Associate/JV Operations

Dialog’s associate and JV profits increased 14% yoy to RM30.9m, continued to be supported by the tank terminal businesses and also PSC profit as a result of higher oil prices. FY19E earnings growth will be mostly driven by the commencement of the PDT Phase 2 project.

Maintain HOLD

We did a minor tweak to our earnings forecasts post the annual report figures release. We subsequently raised our target price marginally to RM3.27 (from RM3.25), while keeping our HOLD rating. We believe the current price fully reflects its prospects, trading at 41x forward PE. Our TP has factored in a 20-year extension on the Kertih plant, an additional 570k cbm Phase 1 future expansion (on top of the 430k cbm being developed) and potential 2m cbm Phase 3 Pengerang development.

Risks to Call

Key upside risks include new EPCC contract wins. Downside risks include (i) any unforeseen delay in PDT Phase 2 EPCC works, (ii) decline in storage rates, and (iii) operational hiccups in its existing tank terminal business.

Source: Affin Hwang Research - 13 Nov 2018