Dialog’s multi-year rerating process remains intact

Dialog’s multi-year rerating process remains intact

12 Jan 2018
Source: The Edge Financial Daily

Dialog Group Bhd (Jan 11, RM2.67)

Maintain buy with a higher FV of RM3.20: We reiterate our “buy” recommendation on Dialog Group Bhd with a higher sum-of-parts (SoP)-based fair value (FV) of RM3.20 per share (from an earlier RM2.75 per share), which implies a financial year 2019 (FY19) price-earnings ratio (PER) of 40 times — 15% below its five-year average of 46 times. Even though Dialog’s share price outperformed the FBM KLCI by 50% last year and achieved our FVs multiple times, we maintain our conviction that the stock’s multi-year rerating process remains intact.

While our earnings forecasts are unchanged, we raise Dialog’s SoP, partly with the inclusion of a 373-acre (150.95ha) reclaimable land in Pengerang at RM50 per sq ft. This is the balance of the total reclaimable land of 680 acres following the completion of Pengerang Phase 1 (150 acres) and Pengerang Phase 2 (157 acres) by 2019. Currently, 133 acres of the additional land have already been reclaimed, with a total reclaimed area of 440 acres to date.

Recall that the Pengerang Deepwater Terminal (PDT) development undergirds Dialog’s long-term growth prospects as the group is currently securing new potential partners for Phase 3 and future phases, which will be part of the additional 1,000-acre zone comprising further reclaimable land and the adjoining 650-acre buffer zone. At the current stage, Dialog’s footprint in Pengerang has expanded from the original plan of only 500 acres by 2.7 times to 1,330 acres, catering to additional petrochemical, storage, and support facilities which will be needed to support Petroliam Nasional Bhd’s nearby refinery and petrochemical integrated development (Rapid) project.

PDT phase 1 will expand by 33% or 430,000 m3 of storage under Phase 1E, which will leave enough space for additional tanks with a capacity of 600,000 m3.

Dialog is trading at a FY19 PER of 34 times, below its five-year peak of 46 times. We view the premium as justified given Dialog’s long-term recurring cash flow-generating businesses, which are largely cushioned from volatile crude oil price cycles, and further underpinned by the strategic Pengerang development’s revaluation dynamics. — AmInvestment Bank Research, Jan 11

Dialog Group Bhd

FYE JUNE (RM MIL) 2017 2018F 2019F 2020F
Revenue 3,392.9 3,668.0 3,886.4 4,086.7
Core net profit 348.2 405.8 448.1 501.6
FD core EPS (sen) 6.2 7.2 7.9 8.9
FD core EPS growth (%) 4.9 16.5 10.4 11.9
Consensus net profit   407.0 462.8 543.3
DPS (sen) 2.7 2.7 2.9 3.2
PER (x) 44.0 37.8 34.2 30.6
EV/Ebitda (x) 31.8 26.8 23.7 22.3
Dividend yield (%) 1.0 1.0 1.1 1.2
ROE (%) 13.4 14.4 12.5 12.9
Net gearing (%) nm nm nm nm