Period     4Q13/FY13

Actual vs. Expectations  4Q13 net profit of RM52.2m brought FY13 net profit to RM193.3m, within both our (RM189.6m) and consensus (RM197.0m) full-year forecasts.

Dividends    A final NDPS of 2.2 sen was declared in 4Q13; bringing total NDPS to 3.3 sen; marginally below our 3.5 sen expectation for FY13.

Key Results Highlights  QoQ,  net profit was up 11.7% on the back of recovered EBIT margin (+2.3bps) in the final quarter. Recall  that 2QFY13 and 3QFY13 were marred by lower margins due to cost overruns incurred for a plant maintenance project in Singapore. The margin recovery helped to cushion the impact of lower associate earnings of RM6.2m recorded in 4QFY13 (versus RM11.5m in 3QFY13) which was adversely impacted by pre-operating costs for the Pengerang CTF project and costs for the Balai RSC feasibility study. 

YoY, net profit was up by 5.3%, mainly due to better overall earnings in its main divisions, which helped to cushion the lower associate contributions recorded  in due to up-front expenses incurred for the Jubail Supply Base, Pengerang CTF, Balai marginal field and Bayan brownfield projects.

Outlook    Construction works for Phase 1 of Pengerang CTF is ongoing with tentative completion by 1QCY14. Around 80% of customers have been secured under medium- to long-term contracts (3-5 years), mitigating concerns on capacity not being taken up. Phase 2 has yet to start despite reclamation works being almost done. Its commencement will depend on the outcome of the Final Investment Decision (FID) for Petronas’ RAPID project (which completion is reportedly delayed to late-2017/early-2018).

The pre-development phase for the Balai RSC has been extended for another 6 months (from original 12 months). Maiden oil has been hit but earnings contributions are likely to be earliest in CY15/16. Beyond Balai, Dialog remains on the lookout for more RSC opportunities, though on a more selective and synergistic basis.

Change to Forecasts   We maintain our FY14 earnings and look forward to introduce our FY15 estimates pending further guidance from management in regards to the finer details of Pengerang CTF and Balai RSC. 

We expect to see minimal Pengerang CTF and Balai RSC contribution in FY14 given that maiden earnings from both projects could still be offset by pre-operating and setup costs. 

A full-year contribution for both should be expected in FY15, assuming no unexpected delays.

Rating  MAINTAIN OUTPERFORM

Valuation     We maintain our basic FY14 SOP-based price target of which will impact its future recurring incomes negatively.

Risks    1) Delays in its in-house EPCC jobs and new projects, RM3.28/share for now.

Source: Kenanga