KUALA LUMPUR: Analysts are keeping a positive call on Dialog Group Bhd following a solid set of results and expectations the group will continue its earnings recovery amid an improvement in utilisation rates.
According to Hong Leong Investment Bank (HLIB) Research, Dialog’s independent terminals are enjoying rates of S$6+ per cbm as compared to S$5-6 per cbm last year, while utilisation rates are hovering slightly above 90%.
“With oil producing and trading activities gathering pace in the region, we believe Dialog’s midstream business will continue to anchor its performance going forward.
“We also note that there is lack of additional terminals supply in SEA region except Dialog’s ongoing PDT phase 3 development,” it said in a post-results note.
During the quarter, Dialog’s core earnings were up 3.9% year-on-year to RM137.8mil after adjusting for the fair value loss on other investments, forex gain and gain on disposal of PPE.
HLIB said the quarterly result was slightly below its expectation at 22% of full-year estimate, and within consensus expectation at 24% of its full-year projection, with the variance owed to the lower-than-expected contribution from the downstream EPCC business
‘We cut FY24 forecast earnings by 5.7% but retain our FY25-26 forecasts, as we lower our FY24 profit margin assumptions for EPCC downstream business,” it said.
However, the share remained a “buy” for HLIB with a lower target price of RM2.31, from RM2.38 previously.
The research firm continues to favour Dialog for its recurring income business model and deems it one of the only listed secular growth stocks in the local oil and gas space.
“We look forward to the group securing new long-term dedicated storage tank terminal contracts for its future Pengerang Phase 3 expansion.
“Nonetheless, although we are upbeat on Dialog’s long-term prospects, a near-term risk is its potential exclusion from the KLCI in the upcoming review,” it added.
RHB Research, meanwhile, said Dialog’s 1QFY24 core earnings were within expectations at 25% of its full-year estimate.
The research firm maintained its “buy” call on Dialog after adjusting its target price lower to RM2.79 from RM2.85, after including a higher 6% environmental, social and governance (ESG) discount based on a revised ESG score.
Downside risks include weaker tank terminal rates and the slower-than-expected expansion of Pengerang Phase 3, it said.
RHB said downstream activities are anticipated to remain robust in terms of engineering, construction and plant maintenance, while it sees an improved outlook for the fabrication and speciality products arm.
“Cost challenges and margin pressures are likely to persist in the near term, but we expect
margins to improve y-o-y in the coming quarters following the tail-end of certain legacy projects,” it said.
RHB is also positive on the announced expansion plan for its jointly owned fabrication facilities in Pengerang with an investment value of RM250mil.
It added that the group’s maiden venture into speciality chemicals could also diversify its earnings base, although earnings could be volatile depending on the products spreads.
“We were guided that the project’s IRR could be in double digits at least, with a payback period expected within 10 years,” it said.
Kenanga Research, which said Dialog’s earnings were within its expectations, reiterated its “outperform” recommendation on the stock with an unchanged target price of RM3.10.
It said there have been signs of cost pressure easing while a gradual ramp-up in activities in both upstream and downstream will result in improved gross margins in the near- to medium-term.
It noted also that Dialog still owns 500 acres of land for longer-term development in Pengerang.
“Downside risks include prolonged and intensifying cost pressures, delay in capacity expansion plans and reduced utilisation of tank terminals,” it said in its results note.
-TheStar