• Keep BUY with new MYR3.09 TP from MYR2.96, 24% upside and c.2% FY25F (Jun) yield. FY24 results surpassed expectations, with core earnings strengthening by 20% YoY, backed by a ramp-up in Dialog’s domestic and international operations. We see new midstream capacity expansion as long- term growth drivers amidst delivering a strong set of results.

• Results beat expectations. At 106% and 103% of our and Street’s full-year estimates, FY24 core earnings of MYR611m (+20% YoY) beat our expectations – largely due to lower-than-expected finance costs.

• 4QFY24 core profit grew 2% QoQ to MYR165m after stripping off items that included a MYR5m fair value loss on other investments, MYR23m impairment on the JV food grade recycled polyethylene terephthalate pellets (PET) plant, etc. The stronger QoQ performance was largely due to a higher contribution from upstream and engineering, construction and maintenance (ECM) activities, increased international business activities, and stronger JV & associates contributions (+16% QoQ) that masked lower non-operating income. Cumulatively, FY24 core earnings strengthened by 20% due to stronger profit from Dialog’s domestic (+68% YoY; higher production from upstream operations and narrowed losses of certain downstream projects) and international operations.

• Outlook. The ECM division’s profitability is likely to improve as legacy contracts are largely phased out. Occupancy levels and monthly storage rates for independent terminals are still well sustained, at above 90% and above SGD6/cu m. Meanwhile, we are guided that the impairment made on the PET plant was due to the weak market conditions. We are positive on the recently announced expansion of Langsat 3, especially when bulk of the capacity is catered for renewable products. Furthermore, Petronas and its partners have reached the final investment decision or FID to develop a biorefinery in Pengerang Integrated Complex, Johor, which is targeted to be operational by 2H28. We estimate the potential storage terminal demand to cater for this biorefinery could be 300,000-400,000cu m. Dialog, in our view, stands a chance to offer storage terminal to this new plant given its presence in Pengerang.

• Still BUY. We increase our FY25F-26F earnings by 3% to incorporate lower finance costs. Our SOP-based TP is also lifted to MYR3.09 after the latest update, coupled with a 6% ESG discount based on an ESG score of 2.7 vs the 3.0 country median. Downside risks: Weaker tank terminal rates and slower- than-expected expansion of Pengerang Phase 3.

Source: RHB Research - 16 Aug 2024