Dialog propelled by Pengerang development - The Edge Financial Daily

Dialog propelled by Pengerang development
18 May, 2017
Source: The Edge Financial Daily


Dialog Group Bhd
(May 17, RM1.94)
Maintain buy with a higher fair value of RM2.24:
Currently, property agents' asking price for industrial land in Sungai Rengit in Pengerang, Johor, has reached RM85 per sq ft(psf).

We have also raised Dialog Group Bhd's financial year 2017 (FY17) to FY19 earnings by 4% to 7% as its nine months for financial year ended March 31, 2017 (9MFY17) normalised net profit of RM249 million, excluding lumpy gains of RM22 million mainly from an office-cum-warehoose sale in Singapore, came in above expectations, accounting for 77% of our FY17 earnings and 79% of street's RM316 million.

For comparison, 9MFY16 accounded for 71% of FY16 earnings. Th group also declared an interim dividend of 1.2sen (+0.2 sen year-on-year[y-o-y]), above our expectations.

Dialog's 9MFY17 normalised net profit rose by an estimated 15% y-o-y from an 87% surge in associate contribution to RM79 million with the full contribution of its Pengerang Phase 1 tank terminals and improved spot storage rates.

The overall improved 9MFY17 bottom line also benefited from higher progress work recognition for Pengerang Deepwater Phase 2, Samsung's jetty topside works and a plasticiser plant for UPC Chemicals (M) Sdn Bhd in Kuantan, Pahang.

On a quarter-on-quarter comparison, Dialog's third quarter FYI7 core net profit gained 9% to RM94 million from the Pengerang progress works and higher specialist products sales in India, Russia and the Middle East.

The RM5.5 billion contract for the construction of Pengerang Deepwater Terminal (PDT)Phase 2 currently occupies Dialog's fabrication, engineering and construction division, and underpins the group's earnings over the next two to three years.

The group's progress on the RM6.3 billion PDT Phase 2 is on track as the Refinery and Petrochemical Integrated Development (Rapid) complex remains on schedule with progressive completion in 2010 to 2019. Additionally, the RM2.7 billion liquefied natural gas (LNG) regasification plant and storage tanks, in which Dialog has a 25% equity stake, are scheduled for completion by end of 2017.

For the Pengerang LNG regasification project, in which two tanks with a combined capacity of 200,000cu m are being built at a cost ofRM2.7 billion, the first tank will be completed by July 2017 and the second tank by December 2017. This will cater to Petroliam Nasional Bhd's 1,220 MW power plant, which will also provide up to 1,480 tonnes per hour of steam for plants within the Rapid complex.

Currently, Dialog is trading at a 2018 price-earnings of 26 times, below its five-year peak of 29 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. —Amlnvestment Bank, May 17

Dialog Group Bhd

FYE JUNE (RM MIL) 2016 2017F 2018F 2019F
Revenue 2,534.5 3,314.0 3,475.4 3,553.0
Core net profit 307.8 334.2 368.9 412.4
FD core EPS (sen) 5.9 6.4 6.8 7.6
FD core EPS growth (%) 7.5 8.5 6.7 11.8
Consensus net profit   316.2 345.5 382.9
DPS (sen) 2.4 2.5 2.5 2.5
PER (x) 32.5 28.1 27.9 24.9
EV/Ebitda (x) 25.8 23.3 21.8 20.9
Dividend yield (%) 1.3 1.3 1.3 1.3
ROE (%) 14.0 14.0 12.6 13.0

Sources: Aminvestment Bank, company report