DIALOG’s 1Q17 set of results, is deemed within expectations, as the first quarter is a seasonally weakest quarter. While DIALOG is on track to build on its Pengerang Deepwater Terminal Phase 2, the company is currently seeking for new potential partners for subsequent phases, which is positive in the long run. However, we reiterate our MARKET PERFORM call with an unchanged target price of RM1.51/SoP share in view of limited catalysts in the near term.

Deemed within expectations. DIALOG recorded core net profit of RM63.6m in 1Q17 accounting for 22%/20% of our/consensus’ full year estimates after stripping off gain on disposal of PPE amounting to RM17.8m. It is deemed within expectations as the first quarter is seasonally weaker than the other quarters. No dividend was declared as expected.

Seasonally weaker 1Q. DIALOG booked in core net profit of RM63.6m in 1Q16 after excluding the gain on disposal of an officecum-warehouse in Singapore. In tandem with a 9% decrease in revenue, the CNP fell 13% QoQ and further dragged by 38% higher finance cost and 13% weaker associate and JV income. YoY wise, CNP improved by 9% from RM58.1m in 1Q16 in tandem with 22% stronger top line and underpinned by stronger JV and associate contribution led by its Pengerang independent terminal. However, it was partially offset by weaker EBITDA margins (10.6% in 1Q17 vs. 13.2% in 1Q16) resulting from weaker upstream activities, including specialist products and services.

Long-term growth model stays intact. Its Phase 1 independent terminal with a storage capacity of 1.3m m³ has been fully leased out to international oil majors and traders. There is a vacant land in which DIALOG is considering to expand with a projection of additional capacity of 1m m³. In addition, its engineering and construction segment is busy with the Phase 2 project with progress still as per schedule. It is expected to add another 2.1m m³ of storage capacity, targeted to reach completion by 2019. This is also expected to contribute positively to the group’s EPCC division with Dialog’s portion amounting to RM5.5b. Meanwhile, DIALOG has also entered into a JV with a 25% equity stake in the upcoming Pengerang Regasification project (RGT) with a total investment of RM2.7b. Earnings are expected by 2018 as the RGT will be completed by 4QCY17.

Fabrication remains occupied but upstream still weak. DIALOG has submitted a field development plan on its D35/D21/J4 field in June for approval. Despite so, we reckon the outlook for upstream segment to stay challenging in view of prolonged low oil prices. On the other hand, we believe its fabrication segment to remain occupied with its on-going projects such as Pengerang Deepwater Terminal Phase 2, Jetty Topside works for Samsung and bullet tanks for Toyo. No changes to our earnings forecast as we expect the earnings to pick up in the coming quarters.

Keep MARKET PERFORM. Overall, while DIALOG is on track to build on its Pengerang Phase 2, the company is currently seeking for new potential partners for its subsequent phases. We maintain our MARKET PEROFRM call with unchanged SoP-driven TP of RM1.51, implying 27.6x FY17 PER and 3.3x P/BV. Downside risk to our call is a delay in its in-house EPCC jobs, which will further delay its future recurring income from Pengerang Terminal Phase 2

Source: Kenanga Research - 23 Nov 2016