INVESTMENT HIGHLIGHTS

• Dialog Group’s 1QFY17 reported earnings grew by +27.8%yoy to RM81.3m

• Quarterly normalised earnings excluding gains on disposal of assets is approximately RM63.5m

• Sustained strong performance from tank farm business

• Maintain NEUTRAL with unchanged TP of RM1.68

1QFY17 earnings within estimates. Dialog’s reported 1QFY17 earnings increased by +27.8%yoy to RM81.3m. The strong earnings were partly supported by strong jointly controlled entity (storage tank business) which contributed RM25.07m in 3MFY17. Excluding gains on disposal of assets amounting to RM17.77m, the group’s normalised earnings of RM63.5 came in within our estimates, accounting for 23.5% of our full year FY17 earnings expectations. The normalised earnings however failed to keep pace with consensus estimates by a variance of more than <5%.

Tank farm business going strong. The company noted that the local Malaysian downstream sector was buoyant while the upstream segment was lacklustre. The group was kept busy by the Pengerang Deepwater Terminal Phase 2, Jetty Topside works for Samsung and Toyo bullet tanks.

Margins intact. The company’s 1QFY17 net profit margin remains healthy and intact at 12.4%, representing an expansion of about +1.2ppts from a year earlier. 1QFY17’s profit margin is the highest in six quarters and this is also the eighth consecutive quarter the group recorded profit margins above >10%.

Impact on earnings. We are maintaining our FY17 and FY18 earnings forecasts at this juncture.

Maintain NEUTRAL. For the past 24-months, Dialog’s share price has been unexciting, trading within the narrow band of RM1.44-1.70 per share. At current price, we believe that the company’s capital upside is limited without significant re-rating catalysts. We are maintaining our NEUTRAL recommendation with an unchanged FY17 TP of RM1.68 per share. This represents an implied forward PER of 28.6x. Our valuation is based on a sum-of-parts method pegging a PER of 20x to its core businesses ie. EPCC, Plant Maintenance, Specialist and Catalyst. As for the centralized tankage facilities business, our discounted cash flow is based on a discount rate of 8%.

Source: MIDF Research - 23 Nov 2016