Dialog’s 1HFY19 core PATAMI of RM253m (+24% yoy) came in within our and consensus expectations. EBITDA margin recorded a huge improvement this quarter driven by the overall project cost savings following the completion of Pengerang Deepwater Terminal (PDT) Phase 2 construction and as it entered into commissioning stage. Maintain HOLD but at a lower TP of RM3.17, after factoring in lower Phase 2 capacity.

Cost Savings Drive Earnings

Dialog reported 2QFY19 core profit of RM138.4m, which brought cumulative 1HFY19 profit to RM252.7m. Results was within expectation as it accounted for 55% and 54% of our and consensus estimates. Despite 1HFY19 revenue falling by 21% following the completion of PDT Phase 2 construction work, core profit jumped 24% yoy, driven by overall project cost savings as it entered into commissioning stage. Dialog’s associate and JV also benefited from similar cost savings, which resulted in profits increasing by 9% yoy.

Phase 3 More Room for Petrochemical Product

The land reclaimation activities for Phase 3 is currently 30% completed and scheduled to be completed by end 2019. Dialog is looking to venture more into petrochemical storage tanks vs. the crude and petroleum products in the past, which is a long-term positive given accessibility of RAPID and being an early player in the region.

Maintain HOLD

We tweak FY20-21E forecasts lower by 2-3% reflecting lower expected capacity for PDT Phase 2 (from 2.1m cbm to 1.3m) which is targeted to commence earnings contribution in 1QFY20. We lower target price to RM3.17 (from RM3.27) but maintain our HOLD rating. 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 sizable EPCC contract wins. Downside risks include (i) decline in storage rates, (ii) operational hiccups in its existing tank terminal business and (iii) any delay in Phase 3 expansion timeline.

Source: Affin Hwang Research - 15 Feb 2019