Period 2Q14/6M14
Actual vs. Expectations The 2Q14 core net profit of RM66.4m brought 2H14 net profit to RM114.1m. This was above our expectations at 51.7% of our (RM220.8m); but within consensus (RM253.3m) at 45.0% of full-year forecasts. We deem the results as above our expectations as DIALOG is typically seasonally weaker during the 1H of the year.
Dividends As expected, no DPS was announced as DIALOG usually declares dividends in the 2H of the financial year.
Key Results Highlights QoQ, net profit was up 47.7% mainly on the back of: (i) better sales revenue from the Specialist Products & Services in Malaysia, India, Middle East and Australia and (ii) better JV earnings.
YoY, net profit was higher by 39.8%, mainly due to: (i) better revenue, which was propped up by the EPC of the Pengerang project, and (ii) better JV performance in the current quarter.
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.
The fate of Phase 2 is pending the conclusion of a Final Investment Decision (FID) for Petronas’ RAPID project. As we are positive on the outcome, we have included an additional 0.72m cbm of storage capacity into our sum-of parts forecasts from FY17 onwards.
The Balai RSC has apparently hit first-oil and is due for Extended Well Testing (EWT) programme by 1QCY14. The EWT programme is the final operational phase in the pre-development programme for the Balai cluster fields. Upon successful completion of the pre-development phase and assessment of the project viability of the field, BCP will progress to the field development planning phase. We have only expected earnings contributions from FY17, and as such, any project acceleration would be further earnings catalyst for the stock.
Change to Forecasts Given the sterling performance in the quarter, we believe we may have been too conservative in our JV forecasts. As such, we are accelerating the Pengerang earnings to FY14 (versus FY15). We assume around 15% utilisation rate (out of 1.3m cu m3) which raise our JV projections to RM63.8m (from RM47.8m previously). This lifts our FY14 net profit forecasts by 5.8%.
We maintain our FY15 forecasts for now, unless JV earnings accelerate from here onwards.
We introduce FY16 net profit forecasts of RM286.3m (refer to back page) as we roll forward our TP base to CY15 (versus previous CY14) given that investors have a longerterm view for the sector, going forward. The minimal growth (2%) for now is largely due to deferred contributions from Balai and the LNG capacity enhancements in Pengerang potentially only coming in by FY17.
Rating MAINTAIN OUTPERFORM
Valuation Post the rolling forward of our CY-15 SoP-based valuation, TP increases to RM3.92 (versus RM3.90).
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
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