Dialog's FY17 outperforms estimates with tank terminal earnings - The Malaysian Reserve

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


â–ºRecommendation: Buy
TARGET Price: RM2.26 

by Maybank Investment Bank Research (Aug 17)

Our View
Group Bhd's FY6/ FY17 core earnings and DPS came in above our forecasts, prompting an upgrade to FY18-FY19 earnings forecasts by 1% per annum (pa) and DPS by 10% pa.

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.