Dialog seen to deliver better FY17 profit - The Edge Financial Daily

Dialog seen to deliver better FY17 profit
07 June, 2017
Source: The Edge Financial Daily


Dialog Group Bhd
(June 6, RM 1.93)
Maintain a hold call with a higher target price (TP) of RM1.95: We raise our financial year ending June 30,2017 (FY17F)/FY18F earnings by 15%/10% as we review our key assumptions. We made the following changes: additional work from the Pengerang projects, and stabilisation of the specialist products and services sub-segment following the decline experienced in FY15 to FY16. Although its long-term expansion progress is promising, we believe this has been reflected in the share price.

Dialog is set to strengthen its long-term recurring income business through its tank terminal expansion in Pengerang Deepwater Terminal (PDT) within the Pengerang Integrated Petroleum Complex (PIPC).

Its long-term expansion progress is promising and we see huge potential in the overall Petroliam Nasional Bhd (Petronas) refinery and petrochemical integrated development (Rapid) project, as it is set to become a regional downstream oil storage and trading hub.

Furthermore, we foresee positive developments in the upstream segment in light of the stabilisation of global crude oil prices and eventual recovery of oil majors' capital expenditure (capex) cycle.

With Pengerang Phase 1 operating at a high utilisation rate and with an additional capacity of 2.5 million cu m underway in Phase 2 and the liquefied natural gas (LNG) terminal, we expect contributions from tank terminal operations to pick up in the coming years.

Profit will continue to be supported by its engineering, procurement construction and commissioning (EPCC) segment, contributed mainly by the RM5.5 billion Pengerang Terminal Phase Two, which is expected to be up and running by 2019.

Dialog's Malaysia operations will continue to contribute around 75% of its total earnings on the back of continued high work flow from the EPCC segment from its current ongoing projects like the Pengerang Deepwater Terminal Phase 2, Malaysia LNG Train 9, Toyo bullet tanks and Sabah Ammonia Urea project (Samur) piping works.

The development of Pengerang Phase 1 and 2 for a dedicated industrial terminal for Rapid is valued at RM6.3 billion with the EPCC portion carried out by Dialog at RM5.5 billion. We expect the order book to materialise progressively from now till 2019.

While Dialog does not formally provide updates on its tank terminal utilisation rate, we understand that the current terminals have been enjoying high utilisation (~90%) as a result of crude surplus in the market as well as notably higher product trade flows in the region.

Volatility in crude oil prices will continue to drive the surge in demand for physical oil and petrochemical borage. By virtue of that, we expect the overall utilisation rate to remain high for the Kertih, Tanjung Langsat 1 and 2 and Pengerang Phase 1 terminals.

We forecast a drop in overall group utilisation rate in FY18/FY19 due to the Pengerang Phase 2 terminals coining onstream. We believe the group utilisation rate will stabilise to circa 90% in FY20.

Our sum-of-parts TP is revised to RM1.95 (from RM1.70 previously), based on a discounted cash flow for the tank terminals and upstream business; and 15 times price-earnings for the core business (plant maintenance, catalyst handling, specialised products and services segments).

Unforeseen delays in the current EPCC work progress will result in earnings' deferment Potential delays in Rapid's targeted start-up in 2019 will affect the Phase 2 terminal contribution to Dialog.

We expect Dialog to deliver better earnings growth of 22% in FY17, underpinned by the progress of the ongoing Pengerang Phase 2 construction and existing tank terminal business. Progressive improvements in joint venture (JV) and associates' earnings are also expected to come through.

The completion and full operation of Pengerang Phase 2 and the LNG terminal by 2019 and 2018, respectively, will provide Dialog with a more stable recurring income stream Upon completion, we expect the JV and associate earnings to grow at a three-year compound annual growth rate of 24% from FY16 to FY19. - AllianceDBS Research, June 6

Dialog Group Bhd

FYE JUNE (RM MIL) 2016A 2017F 2018F 2019F
Revenue 2,534 3,229 3,331 3,433
Ebitda 408 494 560 606
Pre-tax profit 369 452 481 525
Net Profit 295 356 378 416
Net pft (Pre ex) 261 318 378 416
Net pft (Pre-ex)(%) 12.2 22.1 18.8 9.9
EPS (sen) 5.70 6.65 6.95 7.65
EPS pre ex (sen) 5.04 5.96 6.95 7.65
EPS pre ex (%) 8 18 17 10
Diluted EPS (sen) 5.62 6.54 6.95 7.65
Net DPS (sen) 2.24 2.66 2.78 3.06
BV per share (sen) 46.7 49.2 52.5 57.1
PE (x) 34.0 29.2 27.9 25.4
PE pre ex.(x) 38.5 32.6 27.9 25.4
P/cash flow (x) 22.7 26.3 31.4 30.0
EV/EBITDA (x) 24.6 20.7 18.4 16.9
Net dividend yield (%) 1.2 1.4 1.4 1.6
P/Book value (x) 4.2 3.9 3.7 3.4
Net debt/equity (x) Cash Cash Cash Cash
ROAE (x) 13.4 14.1 13.8 14.0

Sources: Company, AllianceDBS, Bloomberg Finance L P