Dialog Group poised for rerating -The Edge Financial Daily
|Dialog Group poised for rerating |
27 Mar, 2017
Source: The Edge Financial Daily
Dialog Group Bhd
(March 27, RM1.72)
Initiated coverage with outperform and a target price (TP) of RM2.05: We like Dialog Group Bhd for its resilient recurring income model attributed to its role as a leading integrated technical services provider in the midstream, upstream and downstream sectors in the oil and gas and petrochemical industry. We like the group's major growth driver as a prominent player in the Pengerang deepwater and liquefied natural gas (LNG) terminal to build, own and operate the terminal with tankage and marine facilites.
This major development will continue to boost the group's earnings to reflect a five-year profit after tax and minority interests compound annual growth rate of 16.7% from financial year 2013 (FY13) to FY18 forecast (FY18F), and further sweetened by its steady cash flows (return on invested capital is seen at more than 12.3% from FY18F). Forward return on equity is also projected to rise and stabilise at more than 15%, supporting the efficiency of the group to be able to generate more profits without having to increase its capital.
We thus initiate coverage of Dialog with an "outperform" view, supported by our sum-of-parts-derived TP of RM2.05. We see the current period as an opportunity to accumulate prior to the group being fundamentally rerated from FY17E. The group's forward FY18F price-earnings ratio of 22 times is lower versus its global peers at around 25.8 times.
The rerating view is premised on:
- LNG regasification facilities and the Pengerang industrial terminal dedicated to Petroliam Nasional Bhd (Petronas) to commence operations in the fourth quarter of calendar year 2017 (4QCY17) and 1QCY19 respectively;
- Petronas' unwavering commitment to downstream activities, in particular the Pengerang Integrated Petroleum Complex, which dispels any progress uncertainties; and
- an expected oil price uptick and stabilisation at US$50 (RM220.50) to US$60 an oil barrel.
— PublicInvest Research, March 27
Dialog Group Bhd
|FYE JUNE (RM MIL) ||2015A ||2016A ||2017F ||2018F ||2019F ||CAGR (%) |
|Revenue ||2,358.2 ||2,534.5 ||2,555.4 ||2,721.7 ||2,900.0 ||5.3 |
|Gross profit ||401.2 ||319.9 ||363.6 ||373.9 ||366.5 ||-2.2 |
|Pre-tax profit ||370.5 ||368.7 ||479.7 ||522.1 ||565.0 ||11.1 |
|Patmi ||275.1 ||294.9 ||383.9 ||417.8 ||452.1 ||13.2 |
|EPS (sen) ||5.4 ||5.6 ||7.1 ||7.7 ||8.3 ||11.4 |
|PER (x) ||31.3 ||30.1 ||23.9 ||22.0 ||20.3 || |
|DPS (sen) ||2.2 ||2.2 ||2.8 ||3.1 ||4.2 || |
|Dividend yield (%) ||1.3 ||1.3 ||1.7 ||1.8 ||2.5 || |
Sources: Company, PublicInvest Research estimates