RHB Research said Dialog Bhd’s 6MFY20 (FY20 ending June) core earnings came within its and street expectations. There was a 17% yoy growth to RM294.1 mil which was due to the full contribution from Pengerang Terminals (Two) (PT2SB), and stronger EBITDA amid improving margins and stronger international operations.

The research firm said it prefers the company for its consistent earnings growth profile (7-10%), solid ROEs (14.0-14.3%), and recurring-income business model. 

Dialog did not declare any dividend for the second quarter. Overall, international operations doubled earnings qoq, masking the weaker domestic contribution (-12% qoq). Dialog’s Australia and New Zealand operations, as well as other Asia divisions, saw an uptick in engineering, procurement, construction and commissioning (EPCC) works, and benefited from a pick-up in maintenance demand and catalyst handling services.

“Cumulatively, even though revenue dropped 3% yoy following the tail-end of the EPCCs of PT2SB, Pengerang Independent Terminals (PITSB) 1E expansion, and the Langsat 3 Terminal, 6MFY20 core earnings increased 17% yoy.

“This was underpinned by higher EBITDA (+7% yoy) and a higher JV & associates contribution (+60%), which was primarily driven by the commencement of remaining tank terminal capacities in PT2SB in 2QFY19,” said RHB.

Dialog’s EBITDA margins were seen in 6MFY20 at 24.8% versus 22.5% in 6MFY19. The improvement in margins was partially due to the consolidation of Halliburton Bayan Petroleum and the maiden contribution of Langsat 3 (half of the 100,000 cu m was commissioned in August, the remaining half by 3QFY20).

RHB said, going forward, JV & associate contributions in FY20 should continue to grow, backed by the maiden contribution from the PITSB 1E expansion (half was commissioned at end-September 2019, and the remainder will kick in by 3QFY20) and higher tariff revisions on RGT Pengerang (RGTP), starting from 3QFY20.

The research firm maintained its buy call on the company with a TP of  RM4.00. Dialog is expected to lock in more off-takers for its Phase 3A investment plan, with an initial RM2.5 bil investment. 

RHB also said it had factored in an additional 5m cu m of capacity for Phase 3 of Pengerang Deepwater Terminals, resulting in a DCF-derived value of 60 sen per share.

At the noon break today, Dialog shares were traded at RM3.42, up three sen from yesterday’s close, with 2.25 million shares changing hands. – Feb 14, 2020

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