INVESTMENT HIGHLIGHTS

• Dialog Group Berhad’s 2QFY19 reported earnings expanded by +18.2%yoy to RM136.8m

• Near-completion of EPCC projects impacted Malaysian operation’s revenue

• Tank farm business continues to expand by +6.7%yoy to RM41.5m

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

Reported earnings expanded by +18.2%yoy despite contraction in revenue. Dialog’s 2QFY19 reported earnings expanded by +18.2%yoy to RM136.8m. This brings its cumulative 6MFY19 earnings to RM251.4m making up 53.2% and 54.1% of our and consensus’ full-year earnings forecasts respectively. Earnings during the quarter expanded despite a -28.9%yoy contraction in revenue which is mainly attributable to lower revenue recognition from its Malaysian operation.

Malaysian operation affected by near-completion of EPCC contracts. The revenue from the Malaysian operations slumped by - 27.9%yoy due to the near-completion of the EPCC works in Pengerang Deepwater Terminals Phase 2 projects. However, the earnings from Malaysian operation grew +21.5%yoy mainly attributable to the cost savings realised on completed projects and increased share of profits in joint ventures and associates.

Tank farm business continues to expand. Meanwhile, earnings from its tank farm business continue to expand during the quarter by +6.7%yoy to RM41.5m. 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. Pengerang Deepwater Terminal phase 1 is currently being expanded by 430,000m3 while construction of Phase 2 is now on track for with full completion scheduled in early 2019. Meanwhile, 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.

Source: MIDF Research - 15 Feb 2019