Period  1Q14

Actual vs. Expectations Reported 1Q14 net profit of RM47.7m which accounted for 22% and 19% of our and consensus full-year FY14 forecasts of RM221.7m and RM253.3m, respectively.

 We deem the results as within expectations as the 1H of the financial year is typically weaker on the seasonal factor due to operations being wound down towards the tail-end of the year.

Dividends  No DPS was announced this quarter which is within our expectations as DIALOG usually announces its dividends in the 2H of the financial year.

Key Results Highlights QoQ, net profit was down 8.7% on the back of lower revenue from the Specialist Products & Services, in particular, for sales registered in Malaysia, Middle East and Australia. The drop in revenue was mitigated by better margins from its Malaysian and Australian & New Zealand divisions.

 YoY, net profit was up by 1.9%, mainly due to better revenue from the EPC of the Pengerang project which helped to cushion the lower associate contributions recorded 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 1A Pengerang CTF is ongoing with tentative completion by 1QCY14. Phase 1B and Phase 1C are expected to be completed in mid-2014 and end-2014. Phase 2 has yet to start despite the near completion of land reclamation works. 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 Balai RSC has apparently already hit first-oil and the consortium aims to submit a Field Development Plan (FDP) and move towards Final Investment Decision (FID) by the end of 2013. We suspect earnings contributions at the earliest are likely to be in 2015-2016.

Change to Forecasts We have fine-tuned our FY14 earnings to account for: (i) higher revenue from the EPCC division for the Pengerang fabrication project, (ii) lower interest income due to Dialog’s lower cash position as at end-June13, and (iii) lower associate earnings as the full kick-start of the Pengerang project would likely only be in FY15. However, these only results in marginal changes to our net profits.

 We have also introduced FY15 net profit of RM277.6m; which is largely driven by higher associate earnings given that the Pengerang CTF which will have already kickstarted.

We have been conservative and assumed only 30% capacity kick-starts by FY15.

Rating MAINTAIN OUTPERFORM

Valuation  We have also fine-tuned our CY14 SoP-based price target, to include other DIALOG projects. However, due to lower net cash position (versus previous years), our fair value stays constant at RM3.28.

Risks to Our Call i) Delays in its in-house EPCC jobs and projects; and

 (ii) New capex intensive projects which continue to be a drain on cashflows.

Source: Kenanga