Dialog Group : Earnings secured by Pengerang development BUY

STOCK FOCUS OF THE DAY

Dialog Group : Earnings secured by Pengerang development      BUY

We reiterate our BUY recommendation on Dialog Group with unchanged forecasts and fair value of RM1.97/share, based on our Sum-of-Parts (SOP) valuation which implies a CY17F PE of 30x (adjusted for warrant expiry on 12 February 2017). Dialog’s 1HFY17 normalised net profit of RM150mil, excluding lumpy gains of RM22mil mainly from a office-cum-warehouse sale in Singapore, came in within expectations, accounting for 47% of our FY17F earnings and 49% of street’s RM310mil. 1HFY17 bottomline also benefited from higher progress work recognition for Pengerang Deepwater phase 2, Samsung’s Jetty Topside works and a plasticiser plant for UPC Chemicals in Kuantan.

The group’s progress on the RM6.3bil PDT Phase 2 remains on track as the RAPID complex remains on schedule with progressive completion in 2018-2019. Additionally, the RM2.7bil LNG regasification plant and storage tanks, in which Dialog has a 25% equity stake, are scheduled for completion by end-2017. For the Pengerang LNG regasification project, the first tank will be completed by July 2017 while the second tank by December 2017. This will cater to Petronas’ 1,220MW power plant, which will also provide up to 1,480 tonnes per hour of steam for plants within the RAPID complex. Dialog is currently developing 170 acres of industrial estate to support petrochemical industries in the buffer zone between the 500-acre land being reclaimed and the Pengerang mainland. We have not included any potential land value accretion for the buffer zone’s estimated 500 acres in our SOP, which could be raised by an additional 12 sen or 6% at a conservative assumption of RM30 psf.  Currently, Dialog is trading at a CY17F PE of 25x, below its 5-year peak of 29x. We view the premium as justified given Dialog’s long-term recurring cashflow generating businesses, which are largely cushioned from volatile crude oil price cycles.

Others :

KL Kepong : Upstream compensated for weak oleo margins        BUY

Hartalega Holdings : Making Headways from Margin Recovery    HOLD

Sunway Reit : 2QFY17 within our expectation      HOLD

MISC : Mild boost from Gumusut Kakap FPS arbitration win         HOLD

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