Dialog's FY17 outperforms estimates with tank terminal earnings - The Malaysian Reserve
|DIALOG GROUP BHD|
|REVENUE (RM mil)||3,393||3,440||3,540||3,620|
|CORE NET PROFIT (RM mil)||328||342||427||489|
|CORE EPS (sen)||6.1||6.4||7.9||9.1|
|CORE PE (x)||31.7||30.4||24.3||21.3|
|Dialog's FY17 outperforms estimates with tank terminal earnings |
21 Aug, 2017
Source: The Malaysian Reserve
Consequently, we also marginally raised our TP by 1% as we roll over our valuation base year to FY18. We reiterate our penchant on Dialog, for its strong, long-term growth story with steady cashflows and dividends. Our new TP offers a 17% upside. Maintain 'Buy'.
Stronger QoQ earnings, higher DPS in 4Q17. Contrary to initial expectation of a flat QoQ, Dialog's 4Q17 core net profit of RM98m (+20% QoQ; +48% YoY) took FY17 core net profit to RM328m (+26% YoY), 6% above our estimate, in line with consensus. The stronger QoQ was mainly due to lower taxes (effective tax rate of 17% in 4Q17 versus e.18%; 3Q17: 18%) and higher minority interest.
Also, Dialog declared a higher final DPS of 1.45 sen (+21% YoY), bringing FY17 DPS to 2.65 sen (versus our 2.2 sen estimate). Its tank terminal operations reported an impressive FY17 associate earnings contribution (+51% YoY) on lower costs, outperforming its Malaysia (+17% YoY) and overseas (+8% YoY) operations.
Raised FY18-FY19 earnings and DPS. Our marginal 1% net profit rise for FY18-FY19 mainly incorporates a lower tax rate of 20% versus 22%. Our FY18-FY19 DPS upgrade by 10% conservatively imputes a higher core DPR of 43% (+3- ppts) to match FY17's DPR.
Dialog's strong cashflows, atypical to the industry, largely from its tank terminal operations, will support the higher dividends. Our three-year net profit CAGR forecast of 14% (FY18-FY20) is driven by the commercialisation of its Pengerang Phase 2 (SPV2 and SPV3 regassification and tank terminals facilities, both 25%- owned ) and Phase 3 (SPV4; 46%-owned) operations.
Building up from a solid ground. Apart from the additional 1m cu m storage capacity (SPV4), Dialog has much to offer still. It has 500 acres of reserves land to build another 5m cu m of storage terminals, which will form its, Phase 3 programme that could take five-six years to develop. This is another positive catalyst.