Dialog  Group  (DLG)’s  1QFY14  core  net  profit  of  MYR43.5m  came  in below expectations, accounting for 18%/17% of our/consensus full-year estimates.  However, we expect forward earnings to improve. Moreover, we have yet to factor in profit contributions from Balai field and Phase 2 of Pengerang centralised tank farm, which implies  a potential upside  to our SOP-based FV of MYR3.18. Maintain BUY.

• 1QFY14 core net profit weaker y-o-y and q-o-q.  DLG’s 1QFY14 core net  profit  of  MYR43.5m  was  below  expectations,  accounting  for 18%/17%  of  our/consensus’  full-year  estimates  respectively.  Revenue surged  38% y-o-y  on the back of  increased plant maintenance  services and strong sales of specialist products and services in various markets. Contribution from joint ventures (JVs) and associates  declined  26.1% yo-y. 1QFY14  also  saw  a  higher effective tax rate of 24.4%,  vs 19.5%  in 1QFY13 and 22% in 4QFY13.  
• Balai oil  field  commences  production.  Petronas recently  commenced production from  the Balai field in the Balai Cluster Risk Service Contract (RSC)  area  in  early  November.  Although  we  are  excited  about  this development,  we  believe  it  is  still  too  early  to  estimate  its  possible contribution and hence have not factored it into our earnings forecasts.
• Final investment decision  (FID)  on  RAPID  by 1QCY14.  We see little risk  of  the  Refinery  And  Petrochemicals  Integrated  Development (RAPID)  project being  completely axed although it  has yet to reach FID. RAPID  is  an  important  part  of  the  Government’s  12  National  Key Economic  Areas  (NKEAs).  While  DLG  stressed  that  its  independent deepwater petroleum terminal (PIDPT) in Pengerang, Johor was planned a year before the conception of RAPID, and  will proceed regardless of RAPID’s FID, we believe RAPID would be a huge boon to DLG.
• Maintain  BUY,  with  unchanged  MYR3.18  FV.  While  the  stock  has given  a  YTD  return  of  23%,  we  see  further  upside  to  our  earnings forecasts and SOP-based FV of MYR3.18,  as we have yet to factor in: i) the  impact  from the  Balai  RSC, and ii) full earnings from the Pengerang centralised tank farm (CTF)  project (Phase 2  onwards).  Maintain  BUY, as  we  look  forward  to  more  positive  earnings  guida nce  from management.

Financial Exhibits

SWOT Analysis

Company Profile
Dialog (DLG) is one of Malaysia’s leading integrated specialist technical services providers to the oil & gas and petrochemical industry.

Recommendation Chart

Source: RHB