9MFY15’s MYR200m core profit was in line with our estimate and above consensus. Maintain BUY and MYR1.90 TP (19% upside). Strong activities in Malaysia and Singapore and additional earnings from Dialog’s upstream assets offset a slowdown in international revenue. In line with our expectations, the company is pursuing potential partners to develop additional storage terminal capacity.

• Demonstrating diversification in any oil price environment. 9MFY15’s (Jun) MYR200m core profit (+41% YoY) excluded a MYR24m gain on disposal and a ~MYR20m non-recoverable write-off cost in the 32%-owned Balai risk service contract (RSC). It reached 77% of our and 87% consensus full-year estimates respectively. We believe it is also above management’s conservative guidance of mid-teens bottomline growth. Malaysian and Singapore operations did well (+55% EBIT growth YoY), partly due to contributions from the D35/D21/J4 production sharing contract (PSC) (we believe production levels have been higher from levels seen since Sep 2014) and fabrication projects. International operations (EBIT declined 12% YoY) were hampered by low activities in: i) engineering, construction and plant maintenance works, ii) specialist products sales, and iii) fabrication activities in New Zealand.
• Business updates. The Pengerang storage terminal’s (PDT) Phase 1 is in full operation, with >160 vessels (including supertankers) using it for trading purposes. Phase 2 engineering works commenced in 3QFY15. On 11 May, Dialog planned to dispose of Dialog Technivac Ltd to refocus its catalyst handling services on Malaysia and the Asia-Pacific region. For its upstream business, it said production enhancement continues at the Bayan field and aggressive development was underway for the PSC to enhance production – in line with our expectations.
• Maintain BUY and SOP-based TP of MYR1.90 (MYR1.40 TP on stress scenario). This implies 31x FY16F P/E, within Dialog’s 5-year 30x forward P/E. The strong results are attributed to its business modeldiversification in downstream, midstream and upstream segments despite Brent average price of USD57/barrel (bbl) during the quarter vs 1Q14’s USD108/bbl average. Long-term value remains attractive as its storage hub aspires to become the Rotterdam of Asia. It is also the best beneficiary in an oil contango situation, in line with our expectations of long -term Brent of USD80/bbl. Dialog reiterates that it is working towards securing new potential partners in further phases of PDT (beyond the three key phases) and this potential development is already factored in our SOP (P/E on downstream services, DCF for upstream and storage).