• Maintain BUY and MYR3.09 TP, 55% upside with c.2% FY25F (Jun) yield. Dialog’s 1QFY25 results are within expectations, with core earnings strengthening by 16% YoY, backed by improved contributions from its midstream and downstream segments. We see its new midstream capacity expansion as a long-term growth driver. This stock is trading at a rather attractive 20x FY25 P/E, or around -1SD from its 5-year mean.

• Results are within expectations. At 26% and 24% of our and Street full-year estimates, Dialog’s 1QFY25 core earnings of MYR160m (-3% QoQ) are within estimates.

• 1QFY25 core profit improved 16% YoY to MYR160m after stripping off items that included a MYR9m FX loss, and a MYR0.2m fair value gain on other investments, among others. This is despite a 19% decline in topline, due to: i) A decrease in its upstream revenue resulting from lower oil prices, and ii) lower downstream activities amidst the disposal of the Jubail supply base. The YoY growth was largely from a higher contribution from JV & associates (+25%) on the back of higher tank storage utilisation rates and tariffs. 1QFY25 core profit contracted by 3% QoQ, however – dragged by lower revenue (-22%, due to lower international and domestic operations) albeit partly cushioned by stronger JV & associate income and lower tax expenses.

• Outlook. Dialog’s downstream segment is expected to improve, with new plant maintenance projects factoring in new rates, potential contributions from the Morimatsu Dialog fabrication plant in Pengerang (expected to be completed by 3QFY25), and gradual margin improvement. Meanwhile, L53 oilfields in Thailand are expected to maintain oil production at 2,000bpd following the completion of drilling works. Occupancy levels and monthly storage rates for independent terminals are still well sustained, at above 90% and above SGD6-6.5/cu m. Langsat Terminals, Expansion 1 (24,000 cbm tank) will be completed by end-CY24 and Phase 2 of its 150,000 cbm storage for renewable and petroleum products should be completed by Sep 2026. The dedicated storage for renewable fuels is guided to fetch a premium over the current storage rates for conventional fossil fuels. Dialog is actively exploring new markets and engaging potential F&B customers for its JV food grade recycled polyethylene terephthalate pellets (PET) plant.

• Still BUY. We maintain our earnings estimates. Our unchanged SOP-based TP of MYR3.09 has a 6% ESG discount imputed as per our in-house proprietary methodology, as Dialog’s ESG score is at 2.7 compared with the country median of 3.0. Downside risks: Weaker tank terminal rates and slower-than-expected expansion of Pengerang Phase 3.

Source: RHB Securities Research - 20 Nov 2024