Strategic advantages remain for Dialog

18 Jan 2019

Source: Focus Malaysia



WE reiterate our Buy recommendation for Dialog Group Bhd with a lower fair value of RM3.66 per share. We have cut FY19 and FY21 forecasted earnings by 6% to 7% from lower engineering, procurement, construction and commissioning (EPCC) revenue assumptions due to the reduction in Pengerang Deepwater Terminal (PDT) Phase 2's tank capacity by 38%.

Back in 2014, the joint venture partners planned to build a facility to handle, store and distribute crude oil, petroleum, chemical and petrochemical feedstock, products and by-products to and from the Refinery & Petrochemical Integrated Development (RAPID)complex. We understand that the capacity for the storage facilities has been scaled down for now in line with Petronas' new requirements late last year.

Besides the scale-down in the Pengerang 2 capacity, Dialog's intention to take up minority stakes in petrochemical plants in the Pengerang development has raised concerns on the group's exposure to cyclical commodity prices. We view the worries as overblown given that the new possibilities represent a natural evolution for the group to expand its recurring income base. In our view, the current management has demonstrated savvy strategic changes while retaining its prudent business model over the years. 



WE reaffirm our Buy call on MBM Resources Bhd and raise our target price to RM3.80.11 is now our lop sector pick.

The upward revision is to reflect stronger than expected sales over the tax holiday period and is driven by Perodua's new SUV model, the Aruz.

The Aruz is now Perodua's highest priced model; previously, the Alza was its highest priced, al RM5M90 - RM62.690.

Given the large gap in price points, we think the Aruz is unlikely to cannibalise the Alza in a big way. The Aruz would be the cheapest 7-seater SUV from the mainstream brands to be available in the market, giving Perodua a strong advantage. MBM is a cheap play into Perodua's structural total industry volume growth. 



WE recently came away with some positive developments from a meeting with \)&() Green Technologies Bhd's management amid tepid growth in China's auto sales this year.

Going forward, DS*() is trying to penetrate the exterior LED lighting segment, which has room for upside. Despite the negative sentiment surrounding global auto markets following poor sales data recently, we still expect to see double-digit earnings growth this year on the back of more car launches.

Nevertheless, we now shift to a more conservative approach given the hiccups in the global auto markets by lowering our price-earnings multiples and cutting our earnings forecasts. This consequently leads us to lower our target price to 86 sen and our Buy call is retained. 



WE met up with the Kossan Rubber Industries Bhd management recently and it indicated that it does not expect any oversupply issues in the near term. Based on our channel checks, we understand that if oversupply were to happen in 2H19, Kossan and its peers would likely slow down their expansion plans.

Kossan's annual capacity is expected to increase by 20.8% to 32 billion gloves by end-2019.

As far as earnings are concerned, we expect Kossan's FY18 earnings to fall in between RM197.1 mil and RM202.1 mil. Meanwhile, we expect FY19 and FY20 earnings growth to escalate further by 17.1% and 12.5% year-on-year, respectively.

We make no changes to our earnings estimates and maintain our Buy on Kossan with an unchanged target price of RM4.97.