Period  1Q15

Actual vs. Expectations DIALOG’s core 1Q15 net profit of RM49.9m accounted for 18.0% and 18.2% of our, and consensus, full-year expectations, of RM277.5m and RM274.8m, respectively.

 We deem the results as within expectations as DIALOG typically performs better in the 2H of the financial year.

Dividends  No DPS was announced this quarter; within our expectations as DIALOG typically announces dividends only in the latter part of the financial year.

Key Results Highlights Net profit fell 4.5% QoQ, largely due to lower activity from international operations, which contributed to the 15.9% drop in revenue, especially in Singapore and Australia & New Zealand, which provide plant maintenance and EPC works. Bottom-line impact was mitigated by Middle East, especially from contributions of the Jubail Supply Base.

 Net profit rose by 4.7% YoY, as a result of better margins from upstream activities in Malaysia and logistic and supply base activities in Jubail, Saudi Arabia. This is despite associate income being lower by 39.6% on account of start-up costs from the commissioning of Phase 1A and 1B of the Pengerang Deepwater terminal.

Outlook  Pengerang Phase 1A has achieved mechanical completion on 31-Mar and received the first oil shipment on 12-Apr. The construction work for phase 1B has been completed and is now being commissioned for start-up. Phase 1C is due for mechanical completion by end-2014.

 Phase 2 should be “good-to-go” given that the Final Investment Decision (FID) for Petronas’ RAPID project has been approved. For now, the finalised tank terminal capacity and equity stake is pending.

 DIALOG just announced that it has entered into a JV (with 25% equity stake) in the upcoming Pengerang Regasification project. Earnings are expected by 2018 (completion by 4Q17).

Change to Forecasts We maintain our forecasts for now as we deem the results to be within expectations.

Rating Maintain OUTPERFORM

Valuation  Whilst we like the long-term nature of DIALOG’s tank terminal earnings; we are cognisant that the current sluggish crude oil price environment might put some pressure on the other services like plant and maintenance, EPC and specialist services; as such we reduce the CY15 target PER for the core services to 16x (from 18.5x).

 Our ascribed PER is at a slight premium (5%) to the average historical forward PER of 15.4x for the whole sector (15x PER also coincides with our derived PER assuming crude oil price is USD90/bbl in 2015) largely as DIALOG typically trades at a premium within the larger-cap stocks in oil and gas segment.

 Post our valuations cut, our TP falls to RM1.73 (from RM1.83 previously).

 Given that there is still 15% upside from current level, we are maintaining our OUTPERFORM call on the stock.

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

 (ii) New capex intensive projects which drain cash flows.

Source: Kenanga