Dialog to gain from global O&G spending
17 Feb 2022
Dialog Group Bhd’s earnings have been mildly disappointing over the past 12 to 18 months but its long-term outlook remains largely intact with its midstream assets providing a degree of earnings defensiveness and resilience.
“Dialog will continue to be one of the key beneficiaries of Pengerang’s development given its exposure in tank terminals going forward,” said RHB Research.
However, its core net profit for financial year (FY) 2022 is expected to be only 2.2% higher than FY21.
Nonetheless, the group will benefit from winning new domestic engineering, procurement, construction and commissioning (EPCC) projects with global oil and gas spending likely to pick up amid higher oil prices, according to the research house.This will keep Dialog’s downstream business very busy in the next two to three years, added CGS-CIMB Research.
Its recent wins included a RM724mil project in which it has a 30% stake to construct a melamine plant in Kedah, RM360mil EPCC contract to build a booster compressor station in Johor and RM248mil EPCC job to build facilities for a new nitrile butadiene latex plant at Pengerang.
CGS-CIMB said Dialog has always been conservative and is likely to have factored in the higher cost of EPCC execution into its bid prices.
Plant maintenance works at Pengerang may pick up from early 2022 once the new Petronas refinery and petrochemical plants are operational.
Kenanga Research also noted that further developments of Pengerang phase three will be Dialog’s key focus.
Phase three is designated for dedicated terminals serving mid- to long-term clients. With the expected start-up of Petronas’ Pengerang Integrated Complex (PIC), it believes this would help Dialog to expedite talks with potential partners.
MIDF Research added that Dialog had begun its operations at a recycled polyethylene terephthalate (recycled PET) pellets production facility, as part of its environmental, social and governance agenda.
But margins could be affected given inflationary pressure on raw materials and logistics costs, said RHB.
AmInvestment Research, meanwhile, said the group is trying to recover the additional costs caused by the Covid-19-related restrictions from clients together with higher raw material costs.
Hong Leong Investment Bank Research cut its FY22-24 net profit forecasts by 7%, 5% and 3%, respectively, to account for lower downstream EPCC profit margins.
It maintained its “buy” call on the stock with a target price (TP) of RM3.32 a share.
MIDF also has a “buy’’ call with a TP of RM3.80 a share while CGS-CIMB has an “add’’ call with a TP of RM3.58 a share.
AmInvestment said Dialog deserved above-peer premium valuations given its long-term recurring cash flow-generating businesses which are further underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing levels.
Source: The Star