2QFY21 Results Missed as JV Disappoints

• 2QFY21 earnings missed our and consensus estimates due mainly to the negative deferred tax impact at the JV level, as well as weaker revenue
• 2HFY21 should see up/downstream activities gradually improving in tandem with the recent recovery in global oil prices, stronger PT1SB earnings from the recent contract renewal and normalization in PT2SB contribution
• Reiterate Buy But at a Lower SOTP-based 12-month TP of RM4.13

Results missed estimates on deferred tax liabilities impact at JV level

2QFY21 core profit fell 22% yoy to RM119m attributable to: 1) Malaysia revenue halved predominantly due to the decline in Master Service Agreement (MSA) work orders, 2) international revenue fell by 33% broadly on lower activities, and 3) Pengerang Terminals (Two) Sdn Bhd (PT2SB) was hit by a RM30-40m deferred tax provision. The main deviation arose from the tax impact which caught us by surprise, resulting in a 10% earnings miss.

A One-off Event; 2HFY21 Should See Profit Rebounding

2QFY21 saw JV profit falling to its lowest level since 1QFY18, with profit declining 51% yoy mainly affected by a one-off deferred tax provision. Dialog disclosed that the decline was also partly due to the finalization of asset costs, which we suspect was behind Vopak’s (its 25% equity partner in PT2SB) profit warning. However, Dialog guided that the impact was not material, contrary to what Vopak indicated. Elsewhere, PT1SB continued to see full utilisation with some contracts getting renewed in 2QFY21 (similar to 1QFY21), but there was no guidance on renewal volume. We expect the higher PT1SB contract renewals to support any unforeseen volatile earnings surprise from PT2SB.

Cut FY21E EPS by 14% and FY22-23E EPS by 4%

We cut our FY21 EPS forecast mainly to factor in the negative tax impact from PT2SB this quarter. We also trim our revenue estimate to factor in weaker MSA work orders. Malaysia revenue averaged at RM330m/quarter in FY20 benefiting from higher MSA orders, but activities have slowed in the recent 2 quarters, with revenue in the RM145- 165m range. We trim our FY22-23 EPS forecasts to incorporate weaker activities.

Reiterate Buy; Lower TP to RM4.13

We lower our SOTP-based target price to RM4.13 (from RM4.60) post earnings revisions and our lower Phase 3 development valuation (from 3m to 2m cbm). We maintain our Buy rating. Downside risks: Dialog continues to face delays in securing new off takers for Phase 3, construction progress delay and weaker storage utilisation and rates.

Source: Affin Hwang Research - 10 Feb 2021