DLG’s 1HFY14 core net profit met 47%/46%  of our/consensus’ full-year FY14  estimate.  We  consider  this  to  be  in  line  as  2HFY14  is  set  to  be stronger,  with  maiden  contribution  from  its  Pengerang  development. We raise our FY14/15 numbers to account for  a  lower effective tax rate and higher expected profit contribution from Pengerang. Maintain BUY,with a higher SOP-based FV of MYR3.71 (from MYR3.18).

• In  line. We deem  DLG’s  1HFY14 core net profit, after adjusting for oneoff items,  within  expectations at  47%/46% of  our/consensus’ FY14 fullyear  forecasts.  Revenue  surged  38%  y-o-y mainly  due  to:  i)  increased plant  maintenance  and  fabrication  activities,  and  ii)  strong  sales  of specialist products and services in various markets during 1HFY14. 
• JV contributions rise sharply.  Contributions from joint ventures (JVs) leaped significantly on a q-o-q and y-o-y basis.  A lower effective tax rate of 16% vs  19%/23%  in 2QFY13/1QFY14 also helped lift core net p rofit, which grew by 52% y-o-y and 49% q-o-q.  
• Moving  beyond  MoU  with  CE.  We  expect  DLG  to  move  beyond  the Memorandum  of  Understanding  (MoU)  it  signed  with  Singapore-based Concord  Energy  (CE)  in  Nov  2013.  The  one-year  feasibility  study  will look  into  the  proposed  development  of:  i)  a  dedicated  and  exclusive crude oil and petroleum product storage terminal in Pengerang, Johor, with capacity of up to 2m cubic metres, and ii) deepwater jetty facilities to enable the access of very large crude carriers (VLCC) for CE.
• Maintain  BUY;  higher  MYR3.71  FV.  We  lift  our  FY14/15  earnings estimates  by  3.8%/6.4%  respectively  to  take  account  of:  i)  a  lower effective  tax  rate  of  19%  from  20%,  and  ii)  higher  expected  profit contributions  from  its  current  tank  terminal  services.  We  maintain  our BUY  call  on  DLG,  with  a  higher  SOP-based  FV  of  MYR3.71  (from MYR3.18).  Our  FV  has  yet  to  account  for  any  contributions  from  the adjacent Refinery And  Petrochemicals Integrated Development (RAPID) Project.

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

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Source: RHB