INVESTMENT HIGHLIGHTS

• Dialog Group Berhad’s 1QFY19 normalised earnings grew by +16.3%yoy to RM114.6m

• 1QFY19 earnings within expectations

• Tank farm business expanded by +14% to RM30.9m

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

Normalised earnings grew by +16.3%yoy. Dialog’s 1QFY19 reported earnings contracted by -28.1%yoy to RM118.1m. However, after excluding the one-off gain from acquisition of a new subsidiary of RM65.6m in 1QFY18, the company’s earnings excluding minority interest of RM114.6m during the quarter grew +16.3%yoy. Its 1QFY19 earnings were also within our estimates making up 24.3% of our full-year earnings forecasts respectively.

Malaysian operation remains solid. The revenue from the Malaysian operations declined -17%yoy due to reduced downstream activities, in particular its engineering, construction and fabrication works from various projects. However, the decline was partially offset by revenue from Langsat Terminals and higher revenue from upstream business as a result of higher oil price during the quarter. That said, net earnings from Malaysian operation grew +22%yoy attributable to the increased contributions from terminals and upstream activities.

Tank farm business continues to expand. Earnings from its tank farm business during the quarter by +14%yoy to RM30.9m. 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 remains. 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 on track for with full completion scheduled in early 2019. The company also indicated that Phase 3 will be developed on approximately 300 acres of the land located next to Phase 2 within the Pengerang Deepwater Terminals with an initial investment cost of RM2.5b. Land reclamations and discussions with potential customers for Phase 3 have started. There is also a balance of approximately 500 acres available for future phases.

Impact on earnings. No changes 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 a 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 - 13 Nov 2018