DIALOG’s 3QFY20 core earnings (+5% YoY, -5% QoQ) came in within expectations, helped by higher contributions from its terminal business but slightly offset by lower plant maintenance activities. We still like DIALOG, being a proven resilient name, given its recurring income streams, with several growth drivers also set in place (e.g. Pengerang Phase 3, further expansions of Langsat 3). Maintain OUTPERFORM and TP of RM4.15.

9MFY20 results within expectations. DIALOG recorded 9MFY20 core net profit of RM445.3m (arrived after stripping-off fair value gains), coming in within expectations at 80% of our, and 76% of consensus, full-year earnings estimates. Meanwhile, announced interim dividend of 1.2 sen per share is also broadly within expectations.

Stronger YoY results, despite weaker sequentially. YoY, 3QFY20 core net profit of RM151m came in 5% higher, thanks to higher contribution from the group’s terminal business. Specifically, during the quarter, Langsat 3 had commenced operations with 120k cubic meters of storage facility, while Pengerang Phase 1E had also commenced full operations (from partial operations previously, since Sep 2019) with 430k cubic meters of storage facility. Sequentially, however, core net profit was down by 5% QoQ. Although partially offset by aforementioned reasons, the quarter was dragged by lower plant maintenance activities (hence lower revenue) coupled with higher recognition of finance costs. Cumulatively, 9MFY20 core earnings leapt 13% YoY, thanks to contributions from Pengerang Phase 2A (commenced in 2QFY19), on top of the aforementioned full commencements of Langsat 3 and Pengerang Phase 1E during the quarter.

Recurring income nature to provide earnings resilience. Despite the current challenging backdrop of the Covid-19 global pandemic, coupled with the low oil price environment, DIALOG remains a proven resilient group given the recurring income from its terminal business, which has been operating under full efficiency throughout this period. Additionally, DIALOG has also several growth drivers in place, with Pengerang Phase 3 on track for its mid-CY2021 commencement, while the group also has long-term plans to further expand Langsat 3 to 300k cubic meters (from currently 120k cubic meters). That aside, the group still has 500 acres of land within the Pengerang area available for future development.

Maintain OUTPERFORM, with unchanged SoP-derived TP of RM4.15 – implying 42x forward PER, which is close to +2SD from its 5-year mean valuations. No changes to our FY20-21E numbers post-results. Nonetheless, we continue to like DIALOG for: (i) solid track record of earnings delivery, (ii) defensive business with recurring earnings from its tank terminal businesses, and (iii) Pengerang Phase 3 acting as a main growth catalyst driver over the longer-term.

Risks to our call include: (i) lower utilisations of its tank terminals, (ii) slowdown in downstream jobs flow, and (iii) delay in the development of Pengerang Phase 3.

Source: Kenanga Research - 15 May 2020