Period     3QFY13/9MFY13

Actual vs. Expectations     The 3QFY13 net profit of RM46.8m brought the 9MFY13 net profit to RM141.1m. This was surprisingly below our and the consensus expectations as Dialog typically performs stronger in the 2H of the year. The net profit above made up just 66.3% and 67.0% of our (RM212.8m) and the consensus (RM210.2m) full-year net profit estimates. 

Dividends    An interim NDPS of 1.1 sen was declared in 3QFY13; inline with the NDPS of 1.1 sen in 3Q12 and within our FY13E NDPS of 3.5sen. 

Key Results Highlights    QoQ,  despite a 26.5% increase in the revenue, the sequential net income was marginally below (-1.6%) that in 2QFY13 due to the continued cost overruns incurred for a plant maintenance project undertaken in Singapore. We had believed that this was a one-off cost (which was reported in the 2QFY13 results) but apparently, the project was actually only completed within the current quarter.   

YoY, the revenue jumped a significant 51.6% due to the Pengerang CTF EPCC works and the strong performance of Dialog’s Specialist Products and Services division. However, the 1QFY13 net profit rose by only 13.0% (from RM41.5m in 3Q12) due to the: 1) cost overruns mentioned above; and 2) lower associate contributions due to up-front expenses incurred for the Jubail Supply Base Pengerang CTF, Balai marginal field and Bayan brownfield projects that are only expected to contribute in FY14-15.

Outlook    The EPCC of Phase 1 of Pengerang CTF is expected to progress more aggressively towards the tail-end of CY13.

FY13 earnings are expected to reach a new high (albeit to a lesser extent now due to the plant maintenance cost overruns) on account of the full-year earnings impact of LT2, the EPCC jobs for Pengerang CTF and the fabrication job for Balai Marginal Fields. These in-house EPCC/fabrication jobs should keep Dialog busy until 2014.

Both the Balai Risk Service Contract (RSC) and Bayan Oilfield Services Contract (OSC) will turn Dialog from a service provider to a developer and producer of oil/gas field, which will provide it with sustainable recurring incomes in the future.

Change to Forecasts      Given the lower EBIT margins and associate earnings recorded thus far, we are reducing our: 1) forecast FY13 EBIT margins to 10.7% (from 11.4% previously) and 2) the associate contributions to RM47.9m (from RM55m previously). These reduce our FY13 net profit by 10.9% to RM189.6m (from RM212.8m). However, we are keeping our FY14 net profit intact as we expect earnings to return to normal without the cost overruns and with the kick-start of some of the new projects.

Rating  MAINTAIN OUTPERFORM

Valuation     Maintain our basic FY14 SOP-based price target of RM3.28/share.

Risks    1) Delays in its in-house EPCC jobs and new projects, which will impact its future recurring incomes negatively.

Source: Kenanga