Dialog 2Q earnings rise 17pc due to tank farm business, Pengerang - The Edge Financial Daily

Dialog 2Q earnings rise 17pc due to tank farm business, Pengerang
16 Feb, 2017
Source: The Edge Financial Daily

Dialog Group Bhd (Feb 15, RM1.61) Maintain neutral with an unchanged target price (TP) of RM1.68: Dialog Group Bhd's reported second quarter of financial year 2017 (2QFY17) earnings increased by 17.1% year-on-year to RM91.4 million. A large portion of the profits was derived locally amid the challenging global environment. In particular, the strong earnings were derived from jobs in Pengerang while partly supported by the storage tank business which contributed RM50.1 million for the sixmonths of FY17 (6MFY17). Excluding gains on disposal of assets amounting to RM22.3 million, the group's normalised earnings of RM152.4 million came in within our and consensus estimates, accounting for 55% and 49% of fullyear FY17 earnings expectations respectively.

The company noted that the commendable rise in profit was largely due to its tank farm business which was fully leased with better storage rates. In addition to that, its Malaysian operations were buoyed by ongoing works in the Pengerang Deepwater Terminal Phase 2, jetty topside works for Samsung and the construction of the plasticiser plant for UPC Chemicals.

The company's 2QFY17 net profit margin remained healthy above 10%, while the 6MFY17 blended net profit margin was at 11.4%.

We are maintaining our FY17 and FY18 earnings forecasts at this juncture.

For the past 24 months, Dialog's share price has been unexciting, trading within the narrow band of RM1.44 to RM1.70 per share. At the current price, we believe that the company's capital upside is limited without significant rerating catalysts. We are maintaining our "neutral" recommendation with an unchanged TP of RM1.68 per share. This represents an implied forward price-earnings ratio of 28.6 times.

Our valuation is based on a sum-of-parts method pegging a price­earnings ratio of 20 times to its core businesses, namely engineering, procurement, construction and commissioning, plant maintenance, specialist and catalyst As for the centralised tankage facilities business, our discounted cash flow is based on a discount rate of 8%. — MIDF Research, Feb 15