• Keep BUY, with new MYR2.96 TP from MYR2.79, 19% upside and c.2% FY25F (Jun) yield. Dialog’s 9MFY24 results beat expectations, with core earnings strengthening by 14% YoY, backed by a ramp-up in its domestic and international operations. We continue to like the stock for its earnings recovery being the near-term catalyst while part of the Johor-Singapore Special Economic Zone (JS-SEZ) to be developed in Pengerang could further enhance its long-term footing in that area.

• Results beat expectations. At 79% and 77% of our and Street’s full-year estimates, 9MFY24 core earnings of MYR446m (+14% YoY) beat our expectations largely due to higher non-operating income which resulted from the recognition of cash dividend income received due to the excess of economic interest beyond its equity interest in the JV terminal. First interim DPS of 1.5 sen (3QFY23: 1.3 sen) was declared.

• 3QFY24 core earnings grew 11% QoQ to MYR162m after stripping off items that included a MYR7m fair value loss on other investments, and MYR1m in property, plant & equipment (PPE) disposal gains. The stronger QoQ performance was largely backed by stronger non-operating income (+1.8x), masking weaker EBITDA (-14% QoQ) as a result of lower topline (-18%; lower engineering, construction, maintenance (ECM), and supply base activities) as well as lower JV & associates contribution (-18% QoQ; higher FX translation losses and weaker Pan Orient Energy Corp (POEC) numbers). Cumulatively, 9MFY24 core earnings strengthened by 14% due to stronger profit from its domestic (+33% YoY; higher production from upstream operations and narrowed losses of certain downstream projects) and international operations.

• Outlook. Although the ECM segment’s revenue saw a decline in 3QFY24, we expect revenue from the downstream segment to trend higher going forward on the back of new contracts and new rates to cater for the current high cost environment. Margins are also likely to improve as legacy contracts slowly phase out by the end of FY24. Occupancy levels and monthly storage rates for independent terminals are still well sustained, at above 90% and above SGD6.50/cbm. Production for the Baram Junior Cluster development is expected by end 2026 or early 2027 and the preliminary evaluation appears to be positive. For its existing fields, Dialog has ongoing programmes to maintain its production level, which includes drilling activities for its field in Thailand (current POEC’s production at 1.9kbpd).

• Still BUY. We increase our FY24F-26F earnings by 3-4% to incorporate higher non-operating income and downstream contribution. Our SOP-based TP is also lifted to MYR2.96 from MYR2.79 after rolling forward our valuation base year to FY25F, coupled with a 6% ESG discount, based on an ESG score of 2.7. Downside risks: Weaker tank terminal rates and slower- than-expected expansion of Pengerang Phase 3.

Source: RHB Research - 14 May 2024