DIALOG's 1HFY24 results met expectations. Its 1HFY24 core net profit rose 8% YoY driven by strong local and international upstream operations and better tank terminal occupancy, partially eroded by a slight dip in JV earnings. We like DIALOG for its diversified earnings profile. We maintain our forecasts, TP of RM3.10 and OUTPERFORM call.

Its 1HFY24 core profit of RM275m (excluding RM6.4m investment losses and RM0.8m forex gains) met expectations at 52% and 49% of our full-year forecast and the full-year consensus estimate, respectively. The company did not announce any dividend distributions for the quarter.

YoY, its 1HFY24 revenue saw a 9% increase, driven by enhanced upstream production and an uptick in the occupancy rates at its fullyowned Langsat Terminals. Internationally, its Jubail Supply Base saw higher activity, along with a rise in EPCC revenue from Singapore, Australia, and New Zealand.

However, its core earnings growth was more modest at 8%, tempered by a slight decline in income from joint ventures and associates, attributable to reduced earnings from JV-owned terminals. Additionally, an increase in finance costs YoY partially offset revenue growth.

QoQ, its top line picked up by 10%, underpinned by healthy activities in both its owned local and international businesses which are not JVowned.

However, its core profit saw a more significant uptick of 17%, driven largely by lower finance costs, partially eroded by weaker earnings from JV and associates.

Outlook. Dialog's earnings are on an upward trajectory, buoyed by improved occupancy rates at its Langsat terminals and enhanced performance in the upstream segment, notably in production. The company has also seen an easing of cost pressures, with operating expenses growing by a manageable 4% in 1HFY24. Furthermore, the completion of legacy EPCC contracts, which had previously suffered from unfavourable cost bases, marks a significant step towards stabilizing its financial outlook.

Forecasts. Maintained.

Valuations. We also keep our TP of RM3.10 based on Sum-of-Parts valuation (see Page 2). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like DIALOG for: (i) the resilient earnings from its non-cyclical businesses such as operation of storage facilities and plant maintenance, (ii) its earnings growth and diversification driven by the forays into upstream investments, including production assets (its current portfolio of Production Sharing Contracts includes Baram Junior Cluster, D35/D21/J4 and Concession L53/48 in Thailand), and (iii) its strong track record in project execution. Maintain OUTPERFORM

Risks to our call include: (i) prolonged and intensifying cost pressures, (ii) delay in capacity expansion plans, and (iii) reduced utilization of tank terminals.

Source: Kenanga Research - 20 Feb 2024