1QFY20: Results in Line, Better Quarters Ahead

Dialog’s 1QFY20 results came in within expectations. Core net profit was flat qoq, despite revenue scaling higher on plant maintenance activities, as operating costs normalized off a low base in 4QFY19. We roll forward our valuation to FY21 and derive a higher SOTP-based target price of RM4.00 (from RM3.80). Maintain BUY.

Earnings in Line With Expectations

Dialog’s 1QFY20 core net profit made up 23%/24% of our and consensus full-year forecasts. Revenue jumped 43% qoq attributable to: 1) increased on the plant maintenance contribution driven by higher work orders from the recently awarded Master Service Agreement (MSA) by Petronas in July 2019, 2) consolidation of Halliburton Bayan Petroleum revenue, and 3) 50% capacity start-up of the Langsat 3 expansion (100,000 cbm). As Dialog still holds the majority stake in upcoming Phase 3 project, no construction profit has been recognized until such structure been changed into a joint venture. EBITDA margin normalized to 23% in this quarter (4QFY19: 34%) due to the exceptionally low base in 4QFY19.

JV Profits Supported by PITSB and PT2SB

JV profits increased to RM58m (4QFY19: RM51m) as PITSB’s utilisation recovered to 80-90%, after dipping to the 60% level. This coming 2QFY20 should see even stronger PITSB earnings with 215,000 cbm of the total 430,000 cbm Pengerang Phase 1E capacity being commissioned at the end of September 2019. PT2SB also contributed a full-quarter contribution, helping drive JV profits higher.

Maintain BUY

There are some minor earnings revision for FY20-22E forecasts, largely due to some house-keeping updates. We roll forward our valuation and raise our target price to RM4.00 (from RM3.80). We anticipate FY20 earnings growth will be driven by the full-year contributions from PT2SB, Langsat and Phase 1E progressive start-up and higher maintenance income, which will likely lend support to Dialog’s current valuation, now trading at a FY21E 32x PER.

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 - 12 Nov 2019