Dialog’s  1HFY15  (Jun)  core  profit  of  MYR124m  was  in  line  (excluding lumpy investment gains and write-off of RSC unrecoverable costs),  as Malaysian  upstream  activities  offset  a  slowdown  in  international revenue.  Our  BUY  call  and  MYR1.65  TP  (-3%  upside)  are  UNDER REVIEW, pending management’s guidance today. We like  its  defensive proposition and continued growth in offshore and onshore businesses.

In  line.  Dialog’s  core  1HFY15  profit  of  MYR124m  (+32% YoY)  was  in line , excluding an MYR23m gain from the disposal of its other oil and gas(O&G)  investments and a ~MYR20m write  off of non-recoverable cost in the 32%-owned Balai Risk Service Contract (RSC), which is classified as a JV investment.  It  reached  51%  of our/consensus’  full-year estimates. Malaysia  and Singapore’s  operations  did well  (+11% EBIT growth YoY  ) due  to  increased  contributions  from  the  high-margin  upstream  in  its farmed-in  D35/D21/J4  production  sharing  contract  (PSC)   (since 1QFY15)  and various fabrication projects.  This offset lower engineering activities  following  the  completion  of  Phases  1A/1B  at  its  Pengerang Deepwater  Terminal  (PDT).  International  operations  (revenue  declined 19% YoY)  were  hampered by low activities in engineering, construction and  plant maintenance  works,  sales  of  specialist  products in  India  and Brunei  as  well  as  fabrication  activities  in  New  Zealand.  The  slowdown was  within  our  expectations  -  Dialog  recognised  lower  international works after the 2008/2009 oil price crash.

Business updates. Phase 1C  of PDT  is currently being commissioned, after mechanical completion in Dec 2014.  Phases  2  & 3  have all been given  the  green  light  for  development,  which  will  involve  crude  oil, petroleum storage (~MYR6.3bn project cost) and Liquefied Natural Gas regasification  facilities  (~MYR2.7bn)  dedicated  to  the  Refinery  and Petrochemical  Integrated  Development  (RAPID)  project.  All  its  key upstream assets are up and running following the inclusion of the PSC.

UNDER REVIEW. We retain our TP  of MYR1.65  and earnings forecast,pending further guidance from management today.  While the stock will be  increasingly  driven  by  offshore  developments,  Dialog’s  defensive nature,  locational advantage and concession-nature of its tank terminalsappear  attractive.  The  full  developent  of  its  storage  business  will enhance  the  stock’s  long-term  value.  Its  key  risk  is  greater-than expected costs, as the company is in the midst of an expansion.   

Source: RHB