Dialog`s earnings seen weaker on lower PDT Phase 2 capacity
18 February 2019
Source:The Malaysian Reserve
Dialog's earnings seen weaker on lower PDT Phase 2 capacity
TARGET Price: RM3.17 by Affin Hwang Investment Bank Bhd (Feb 15)
Group Bhd's 1HFY19 core Patami of RM253m (+24% YoY) came in within our and consensus expectations. Ebitda margin recorded a huge improvement this quarter driven by overall project cost savings, following the completion of Pengerang Deepwater Terminal (PDT) Phase 2 construction and as it entered into commissioning stage. Maintain 'Hold' but at a lower target price (TP) of RM3.17, after factoring in lower Phase 2 capacity.
Cost Savings Drive Earnings
Dialog reported a 2QFY19 core profit of RM138.4m, which brought cumulative 1HFY19 profit to RM252.7m. Results was within expectation as it accounted for 55% and 54% of our and consensus estimates. Despite 1HFY19 revenue falling by 21% following the completion of PDT Phase 2 construction work, core profit jumped 24% YoY, driven by overall project cost savings as it entered into commissioning stage. Dialog's associate and joint venture also benefitted from similar cost savings, which resulted in profits increasing by 9% YoY.
PDT Phase 3
The land reclaimation activities for Phase 3 are currently 30% completed and scheduled to be completed by end-2019. Dialog is looking to venture more into petrochemical storage tanks versus the crude and petroleum products in the past, which is a long-term positive, given accessibility of Refinery and Petrochemical Integrated Development, and being an early player in the region.
We tweak FY20-FY21E forecasts lower by 2%-3% reflecting lower expected capacity for PDT Phase 2 (from 2.1m cu m to 1.3m) which is targeted to commence earnings contribution in 1QFY20. Our TP has factored in a 20-year extension on the Kertih plant, an additional 570k cu m Phase 1 future expansion (on top of the 430k cu m being developed) and potential 2m cu m Phase 3 Pengerang development.
Risks to Call
Key upside risks include new sizeable engineering, procurement, construction and commissioning contract wins. Downside risks include: (i) decline in storage rates, (ii) operational hiccups in its existing tank terminal business; and (iii) any delay in Phase 3 expansion timeline.