Dialog’s earnings outlook intact driven by Rapid projects — analysts

KUALA LUMPUR: Dialog Group Bhd’s (Dialog) earnings outlook remains intact, driven by its projects at the Refinery and Petrochemical Integrated Development (Rapid), analysts observed.

In a report, the research team of Public Investment Bank Bhd (PublicInvest Research) said Dialog’s earnings outlook is expected to remain intact as it expected more to come from the Phase 2A, the dedicated petroleum and petrochemicals terminal for Rapid which just commenced its initial stages of commercial operations in November 2018.

“Moreover, the development of Phase 3 and future phases of PDT on the remaining 500 acres land will also be a boon to the group’s other divisions,” it added.

“We understand that the development of Phase 3 is scheduled for completion at end of 2019, and currently the group is in negotiations with its potential customers,” the research team said.

The research arm of AmInvestment Bank Bhd (AmInvestment) noted that the land reclamation of Pengerang Phase 3 involves the construction of petroleum/ petrochemical storage and a third jetty at an indicative initial cost of RM2.5 billion, in which Dialog will have an 80 per cent equity stake and the Johor state 20 per cent.

“We expect any co-investments in petrochemical operations with multinational players to be associate-level, valueenhancing and internally funded without any equity-raising requirements.

“This will be part of a 500acre zone comprising further reclaimable land and the adjoining buffer zone.

“Additionally, Dialog will be expanding its dormant Langsat Terminal 3 into a 300,000 m3 storage facility,” it opined.

Meanwhile, following the release of Dialog’s first half of 2019 (1H19) results, the research team at Kenanga Investment Bank Bhd (Kenanga Research) retained its financial year 2019 (FY19) to FY20 forecast, which imply earnings growth of seven to 14 per cent.

Kenanga Research expected Dialog’s earnings growth to stem from the Pengerang Dedicated Terminals Phase 2, with expected commencement in 2Q19, adding an approximate storage capacity of 1.3m cubic metres – lowered from initially expected 2.1m cubic meters as Petronas shifts its requirement more towards Petrochemicals (from crude oil), thus requiring lower storage capacity, but should be earnings neutral as payments are based made on an IRR-basis (i.e. rates are fixed).

It also expected Dialog’s earnings to be driven by Pengerang Phase 1E, which is expected to commence in mid2019, adding an approximate storage capacity of 430,00- cubic metres, coupled with (iii) fullyear earnings from Langsat Terminals’ consolidated accounts and Pengerang LNG2.

“As for the longer-term, Dialog is currently in the midst of securing partners for Pengerang Phase 3, with the land reclamation expected to be completed by the year end. With an initial capex of RM2.5b and expected commencement in three to four years’ time, we believe Pengerang Phase 3 will eventually add an additional circa five to six million cubic meters of storage capacity,” it added.

On Dialog’s 1H results, Kenanga Research noted that its core net profit of RM251.2 million was within expectations.

“1H19 core earnings jumped 23 per cent y-o-y on the back of full consolidation of Langsat Terminals, as compared to end1H18 where Dialog owned an effective stake of 80 per cent in Langsat Terminals 1 and 2, commencement of operations in Pengerang LNG 2 (25 per cent stake) in November 2017, and cost savings as the EPCC for Pengerang Terminals Phase 2 reached its tail-end phase,” it added.

Both PublicInvest Research and Kenanga Research retained their ‘outperform’ call on the stock while AmInvestment pegged a ‘buy’ call on the stock.