FY15 core earnings came in at MYR245m, at 90%/96% of our/consensusestimates. We remain positive on Dialog’s long-term growth plans especially for its PDT, RAPID and RGT-2 involvement. We maintain our BUY call but trimmed our SOP-based TP to MYR1.83 (from MYR1.90,22% upside), as we adjust our risk premium assumptions.

Core earnings of MYR245m. Dialog’s FY15 (Jun) revenue came in at MYR2.3bn, down 7.6% YoY mainly due to lower contribution from the engineering, construction and plant maintenance in Singapore, lower sales of specialist products and services, and slower activities in its Australian and New Zealand fabrication plants. Full-year contribution from joint ventures (JV) was lower by 90% YoY due to operating and finance cost incurred at the Pengerang Deepwater Terminal (PDT) as well as writeoffs of non-recoverable cost in its upstream venture. Reported net profit reached MYR275m. Stripping out forex and disposal gains, core profit came in at MYR245m. FY15 DPS was 2.2 cents.

Outlook. Dialog commenced engineering, procurement, construction and commissioning (EPCC) works for Phase 2 (2.1m cu m) of PDT with targeted completion in mid-2018. Phase 1 of PDT (1.3m cu m) is fully operational and YTD, 200 vessels including supertankers have berthed at PDT. We are also positive on Dialog’s involvement in Malaysia’s second liquefied natural gas (LNG) regasification terminal (RGT-2), with commercial operations targeted for 4Q17. Recall that RGT-2 will have a regasification capacity of 3.5m tonnes per annum (tpa). We understand that Dialog is further conducting field development studies for D35, 44 and D21 fields, which will be completed in mid-2016.

Maintain BUY with a revised MYR1.83 TP. We adjust our FY16-17Fearnings slightly after taking into account our recent crude oil price forecasts of USD65/barrel (bbl) (from USD80/bbl) for FY16 and USD80/bbl (unchanged) for FY17 onwards, which are partially offset by our higher USD forecast going forward. We also incorporated a higher risk premium to our DCF valuation of Dialog’s tank terminals to arrive at our new SOP-based TP of MYR1.83 (from MYR1.90). We believe Dialog’s involvement in PDT, Refinery and Petrochemical Integrated Development (RAPID) and RGT-2 will enable it to power through the current oil and gas downturn. We remain positive on Dialog and maintain our BUY recommendation. Our FY16 TP implies FY16F P/E of 30x.

What is in store for FY16. We expect FY16 earnings to be driven by contribution from Tanjung Langsat 1 & 2, as we expect storage capacity to increase by almost 100%. FY16 will also see full-year contribution from Phase 1 of PDT, which will see a storage capacity increase of 200%. We are also expecting higher contribution from Dialog’s upstream production sharing contract (PSC) activities at D35, D21 and J4,which are located offshore Sarawak.

Valuation. We incorporated a higher discount to our DCF valuations to 7.9% from 7.4%, as we take into account a higher market risk premium. We also downgraded Dialog’s target P/E for its core business to 20x from 22x due to a prolonged slump incrude oil prices, which could affect its fabrication and EPCC business segments. This results in a lower TP of MYR1.83 (from MYR1.90), implying FY16F P/E of 30x which is the average of its historical trading P/E.