INVESTMENT HIGHLIGHTS

• Dialog Group Berhad’s 4QFY18 reported earnings grew by +10.9%yoy to RM114.8m

• FY18 normalised earnings (excluding fair value gain on disposal) within expectations

• Tank farm business expanded by +11% to RM31.4m

• Maintain NEUTRAL with unchanged TP of RM3.24 per share

Reported earnings grew by +10.9%yoy. Dialog’s 4QFY18 reported earnings grew by +10.9%yoy to RM114.8m. The company’s cumulative normalised FY18 earnings (excluding fair value gain on disposal) which amounted to RM445.1m came in within ours and consensus’ expectations, making up 99.0% of full-year earnings estimates respectively.

Malaysian operation remains solid. Approximately 87% of the group’s FY18 earnings were contributed by the Malaysian operations. The growth of profit from local operations is largely attributable to better performance delivered by both midstream and downstream activities coupled with the revenue consolidation of Langsat Terminals since it was acquired back in September 2017.

Tank farm business continues to expand. Earnings from its tank farm business during the quarter expanded by +11% to RM31.4m. The upbeat contribution is a result of Pengerang LNG (Two) Sdn Bhd which achieved its commercial operations and received first commercial LNG cargo at its newly commissioned regasification terminal at Pengerang Deepwater Terminal in November 2017.

Focus on tank farms going forward. Dialog’s strategy is clear – immediate to long-term focus on tank farms. Pengerang Deepwater Terminal phase 1 is being expanded by 430,000m3 while construction of Phase 2 is now partially completed with full completion scheduled in early 2019. The company also indicated that Phase 3 will be developed on approximately 300 acres of land located next to Phase 2 within the Pengerang Deepwater Terminals with an initial investment cost of RM2.5b.

Impact on earnings. No change to earnings estimates.

Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation on Dialog with an unchanged target price of RM3.24 per share (four-year PER high). Our TP valuation is based on sum-of-parts method, pegging PER of 28x to its core businesses, i.e. EPCC, Plant Maintenance, Specialist and Catalyst. As for centralized tankage facilities business, discounted cash flow is based on a discount rate of 8%.

Source: MIDF Research - 17 Aug 2018