AmWatch - Dialog Group : Steady growth ahead supported by pipeline of tank terminal projects BUY, 13 May 2015

STOCK FOCUS OF THE DAY

Dialog Group : Steady growth ahead supported by pipeline of tank terminal projects                      BUY

We reiterate BUY on Dialog Group with a higher fair value of RM2.05/share (from RM1.95/share previously), based on our sum-of-parts valuation, which implies a CY15F PE of 36x. We raise Dialog’s FY15F-FY17F net profit by 5%-16%, as the group’s 9MFY15 earnings are above expectations, accounting for 89% of our estimate and 86% of consensus. The group declared an interim dividend of 1 sen/share (3QFY14: 1.1 sen).

3QFY15 net profit grew by 65% YoY mainly from its Malaysian operations due to:- (i) contributions from the Production Sharing Contract (PSC) for the D35, D21, and J4 fields located offshore Sarawak since Sept 2014; (ii) contributions from Pengerang Phase 1 that was fully completed with the commencement of Phase 1C during the quarter and; (iii) higher fabrication activities.

This was partially offset by the group’s international businesses that saw net profit decline by 14% YoY. This was mainly due to low engineering, construction and plant maintenance activities in Singapore; less fabrication jobs in Australia and New Zealand; and lower sales of specialist products and services in India and Brunei.

The Phase 2 of Pengerang is due for completion by mid-2018, while the LNG regasification plant and storage tanks will be completed by end-2017. Dialog’s Kertih and Tg. Langsat tankage facilities will continue to underpin its stable and recurring income.  The demand for storage facilities is expected to remain elevated as the current low oil prices present a good opportunity for traders to lock in at the current level. The RM5.5bil EPCC contract for the construction of Pengerang Phase 2 will further support the group’s earnings over the next three years.

Currently, Dialog is trading at a CY15 PE of 28x, above the sector’s average of 18x. We believe the premium is justified given Dialog’s recurring and strong cashflow generating businesses, which are relatively insulated from the near-term fluctuations of crude oil prices.

Others :

Economic Update : Private sector continues to spearhead growth in 1Q15

QUICK TAKES

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Automobile Sector : First thoughts on potential Toyota-Mazda tie-up     NEUTRAL

Construction Sector : 6% PDP fee touted for LRT 3            OVERWEIGHT

NEWS HIGHLIGHTS

Tenaga Nasional : Discussions on Project 3B still ongoing

Water Sector : Ongkili: Langat 2 must go on

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