Dialog’s 2QFY20 core net profit of RM153m (+11% yoy) came in within our and consensus expectations. JV profit was stable qoq, with a stronger uptick in overseas operations, offsetting slower Malaysia activities. We expect the coming quarters’ profits to be supported by full commissioning of PT1SB and the Langsat 3 expansion. Long-term prospects remain positive with the Pengerang Phase 3 development. We maintain our Buy rating with an unchanged target price of RM4.00.

Earnings in Line With Expectations

Dialog’s 6MFY20 core net profit of RM291m made up 49% of our and the consensus full-year forecasts. 2QFY20 revenue declined by 5% qoq due to a slowdown in Malaysia activities which we suspect could be due to lower maintenance orders from the Petronas’ Master Service Agreement. This was partly offset by the full-quarter contribution of the additional 25% stake in Halliburton Bayan Petroleum (HBP) since Aug-19, and full operation of Langsat 3 expansion. Meanwhile, overseas operations saw a stronger performance on more EPCC and maintenance activities. EBITDA margin increased 4.4ppts qoq driven by better overseas work margins, a higher HBP stake and Langsat 3.

JV Profit Stable

JV profit was relatively flat qoq at RM57m (1QFY20: RM58m). On the whole, PT1SB utitlisation rates remained stable qoq at 80-90%. The additional capacity from Phase 1E (215,000 cbm) contributed to a full quarter, and Dialog will see it gradually commissioning towards the full capacity of 430,000 cbm in 2HFY20.

Maintain BUY

We maintain our Buy rating with an unchanged SOTP-based target price of RM4.00. The current valuation will likely continue to be supported by earnings growth from the full-year contributions from PT2SB, Langsat 3, progressive commissioning at Phase 1E and higher maintenance income. 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 - 14 Feb 2020