Dialog’s FY19 core net profit was in line with our expectation, but beat consensus. We expect earnings growth to sustain moving into FY20 on full-year contribution from Pengerang Phase 2 start up, new capacity from Langsat and Phase 1E in the coming quarters, and Phase 3 construction. We raise our target price to RM3.80 and maintain our BUY rating.

Earnings in Line With Expectation

Dialog’s reported FY19 net profit of RM535m (+26% yoy), accounted for 103% and 106% of our and consensus estimates. The full-year earnings growth was largely driven by PDT2’s progressive start up (from 2QFY19 onwards) and EPCC cost savings which drove EBITDA margin up by 9ppts yoy.

JV Profit Fell Qoq on Lower PDT1 Utilisation

JV profit fell by 11% qoq mainly due to a lower PDT1 utilisation rate (estimated at ~60% vs. ~80% in 3QFY19). Nevertheless, overall JV profits sustained above RM50m (3QFY19: RM57m) supported by the completed 1.5m cbm PDT2 start up; 3QFY19 only recognized full-quarter contribution of first phase (740,000 cbm) and partial earnings of the second phase (718,000 cbm) commissioning.

Raising Our Forecasts; Maintain BUY

We raise our FY21 earnings by 12%, reversing our earlier view of an earnings contraction as a result of a higher margin assumption for the EPCC segment. We also factored in higher earnings contribution for PDT2 while also assuming a higher valuation for Pengerang Phase 3 in our SOTP model by raising its Phase 3 stake from 25% to 60%. This led us to revise our target price to RM3.80 (from RM3.50), which implies a 36x FY20 PER (slightly under +2SD its 5-year mean). We believe Dialog’s valuation will likely remain supported given its near-term earnings growth story and potential more newsflows on PDT3 development. Maintain BUY.

Risks to Call

Downside risks include: (i) a decline in storage rates, (ii) delay in project commissioning or operational hiccups in the existing tank terminal business and (iii) any delay in the Phase 3 development timeline.

Source: Affin Hwang Research - 16 Aug 2019