Dialog 9MFY19 core net profit above expectations
16 May 2019
Source: The Edge Financial Daily
Maintain outperform with an unchanged target price (TP) of RM3.80. Dialog registered a nine-month financial year 2019 (9MFY19) core net profit of RM395.1 million, coming in above expectations at 87% and 84% of our and consensus full-year forecasts respectively, lifted by margins expansion due to cost-savings from the tail-end phase of the engineering, procurement, construction and commissioning (EPCC) for Pengerang Terminals Phase 2.
A dividend of 1.5 sen per share was also announced and is within expectations.
9MFY19 earnings jumped 22% year-on-year (y-o-y), mainly driven by (i) stronger associates’ contributions following the commencement of the Pengerang Liquefied Natural Gas (LNG) 2 (25% stake) in November 2017, coupled with initial stages of commercial operations in Pengerang Phase 2A since November 2018, (ii) full consolidation of Langsat Terminals 1 and 2, and (iii) cost-savings from tail-end stages of the EPCC for Pengerang Phase 2, resulting in higher margins.
For the third quarter of financial year 2019 (3QFY19), net profit of RM143.7 million similarly leapt 21% y-o-y, due to an 80% jump in associates’ contributions, likely on the back of initial commercial operations in Pengerang Phase 2A, on top of costs-savings from tailend stages of EPCC for Pengerang Phase 2.
Meanwhile, sequentially, 3QFY19 net profit grew 5% quarter-on-quarter (q-o-q), driven by (i) increase in EPCC works as refl ected in the higher revenue (+4%), likely from early works in Pengerang Phase 3, coupled with (ii) higher associates’ contribution (+40%) from initial commercial operations in Pengerang Phase 2A.
Separately, the company announced that it had started construction works for the terminal and jetty for Phase 3 of the Pengerang Deepwater Terminals. With an initial investment cost of RM2.5 billion, the completion is expected in mid-2021, with land reclamation currently at 62% and scheduled for completion at end-2019.
Additionally, the company has also signed a long-term storage agreement with BP Singapore for storage tanks capacity of 430,000 cu m for clean petroleum products in Pengerang Phase 3, with Dialog holding a 90% stake (remaining 10% held by Johor state). Th is represents the first instance of a public development of an operating partnership and clientele-securement that we have seen for Pengerang Phase 3, and we expect further arrangements to follow, as construction progresses further.
Overall, we believe Pengerang Phase 3 should eventually add approximately around five million cu m to six million cu m of gross storage capacity.
Maintain “outperform”, with an unchanged sum-of-parts-derived TP of RM3.80.
We believe further share price catalyst could still come from (i) further earnings growth delivery from its recurring tank terminal business and downstream services, and (ii) further developments in Pengerang Phase 3 to drive longerterm growth. Post-results, we raise our earnings forecast for FY19 to FY20E core net profit by 3% to 2.6%.
Risks to our call include (i) lower utilisations of its tank terminals, (ii) delay in EPCC jobs, which could further delay income contributions from upcoming expansions, and (iii) delay in the development of Pengerang Phase 3. — Kenanga Research, May 15