1HFY22 earnings came largely flattish YoY, but are still deemed to have marginally missed expectations, given the higher project costs especially for its downstream business. Nonetheless, going forward, we believe the group’s long-term prospects remain firmly intact, with further developments of Pengerang Phase 3 to be a key catalyst. Maintain OUTPERFORM with lower TP of RM3.30.

1HFY22 marginally below expectations. DIALOG’s 1HFY22 PATAMI of RM256.7m marginally missed expectations, coming in at 40% and 44% of our and consensus full-year forecasts, respectively. This was largely due to the poorer operating margins as a result of higher project costs given supply chain disruptions, especially for its downstream business. No dividends were announced, as expected.

Largely flattish set of results. YoY, 1HFY22 earnings were essentially flat. While we did saw higher revenue YTD (+54%), this was mostly offset by the lower operating margins. We suspect this could be due to poorer project mix, coupled with the aforementioned higher project costs. Meanwhile QoQ, 2QFY22 PATAMI of RM127.9m was also essentially flat, due to similar reasons – higher revenue being offset by poorer margins.

Further development of Pengerang a key catalyst. Looking ahead, further developments of Pengerang Phase 3 will be DIALOG’s key focus. Phase 3 is designated for dedicated terminals serving mid-to-long-term clients. With the expected start-up of Petronas’ Pengerang Integrated Complex (PIC), we believe this would help DIALOG to expedite talks with potential partners. DIALOG also has another 500 acres of land in the Pengerang area available for further developments for the longer-term. Meanwhile, expansion of its Langsat Terminals by an additional 85k cubic meters has been completed – bringing total capacity of its Langsat Terminals to 770k cubic meters. We expect the new expansion to start contributing immediately in 2HFY22. DIALOG still has another 17 acres of land in Langsat, which will potentially add another 200k cubic meters of storage capacity in the future – thus bringing Langsat’s total capacity to ~1m cubic meters.

Maintain OUTPERFORM, with a lowered SoP-TP of RM3.30 (from RM3.50 previously). Post results, we slashed our FY22E/FY23E earnings by 16% each to account for the lower operating profits in its downstream segment.

Overall, while earnings have mildly disappointed over the past 12-18 months, we still firmly believe that the group’s long-term outlook remains largely intact, with its mid-stream assets to also provide a degree of earnings defensiveness and resiliency.

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 - 16 Feb 2022