Investment Highlights

• We maintain BUY on Dialog with an unchanged sum-of- parts-based fair value (FV) of RM2.97/share, which implies a 1-year forward PE of 27x - 8% above its 10-year average of 25x . Our fair value reflects a neutral 3-star ESG rating .

• We perform housekeeping adjustments to our forecasts and raise FY24F-FY26F earnings by 1%-2% to account for higher daily Brent crude oil production at the group’s 50%-owned L53/48 concession in Thailand.

• For the group’s upcoming result, tentatively scheduled for 15 August, we expect 4QFY24 core net profit (CNP) to come in at RM155mil (+34% YoY, +3% QoQ). This brings our projected full-year FY24 CNP to RM589mil, which is within consensus estimates.
   
• From recent engagements with management, we believe investors are likely to focus on Dialog’s sequential performance, in particular:
  • The group’s largest earnings driver, the midstream tank terminal business, is expected to remain flat as independent facilities continue to command high spot rates of SGD6-6.5 per cubic metres (cbm).
     
  • e see upside from the upstream segment as production from the L53/48 concession improve to normalised levels of 2k barrels per day (bbl/day). We gather from partner Seaoil (49.1%) that production from the field declined by 13.2% in 3QFY24 to 1.7k due to planned maintenance service.
     
  • As for the downstream segment, we expect continued improvement as losses from the group’s legacy engineering, procurement, construction and commissioning (EPCC) projects bottoms out near completion, coupled with the end of the group’s previous terms for its plant maintenance contract with Petronas.
     
• Recall that management previously guided that earnings contribution in 3QFY24 from the group’s upstream segment accounted for 40%, midstream 45% and downstream 15%.

• Our forecast incorporates a final dividend per share (DPS) of 2.4 sen based on a 37% payout. Hence, we expect the group’s full-year DPS to reach 3.9 sen or a full-year yield of 1.7%.

• We double-down on our long-term optimistic view on Dialog and continue to advocate the stock as an undervalued asset play. The group currently trades at a compelling FY25F PE of 20.2x vs. its 10-year average of 25x.

Source: AmInvest Research - 9 Aug 2024