Shortfall not a setback for Dialog
KUALA LUMPUR: Dialog Group Bhd (Dialog) reported a core net profit of RM119.6 million for its second quarter of financial year 2021 (2QFY21) which brings its first half (1HFY21) to RM251.6 million, accounting for 40 per cent of consensus full year estimates.
The team at Hong Leong Investment Bank Bhd (HLIB Research) said Dialog’s results shortfall was due to lower-thanexpected revenue and profit recorded, attributable to lower engineering, procurement, construction and commissioning (EPCC) and joint venture income.
The group’s 1HFY21 core profit amounted to RM12 million, which was a 14 per cent year on year (yo-y) decline mainly due to lower EPCC revenue and contribution due to lower expansion works for its tank terminals.
“Dialog will continue to be one of the key beneficiaries of Pengerang’s development due to its exposure in tank terminals, EPCC and maintenance services,” HLIB Research said.
“In addition to Dialog’s Terminals Langsat 1 and 2 with a total capacity of 650,000 cubic metres, Langsat 3 has commenced full operations for its 120,000 cubic metre storage facility in January 2020.”
Dialog plans to expand Terminals Langsat 3 into a 300,000 cubic metre storage facility, in line with their strategy to grow sustainable and recurring income. Dialog has not announced its expansion plans post phase 3A of PCTF, SPV 5 and 6 and Langsat 3, which is a leading indicator towards lower EPCC revenue in the near future.
“While Dialog still possesses ample land for expansion, we believe that it will slow down on the expansion of its tank terminal business after the aforementioned expansion projects are completed due to the current uncertainty with regards to the PRefChem project by Petronas and Saudi Aramco,” HLIB Research continued.
“However, the commissioning of the extra capacity from the aforementioned tank terminal expansions are expected to add towards Dialog’s recurring income.
“While we are positive on Dialog’s growth in recurring income, we believe that the presence of strong EPCC contributions is needed to provide stronger earnings.”
Kenanga Investment Bank Bhd (Kenanga Research) sees FY21 to be a mildly challenging year for Dialog, given the overall slowdown in demand for its downstream services.
“Nonetheless, the resilience of its midstream terminal businesses may still provide a defensive baseline to earnings, with its long-term outlook mostly intact.
“Moving forward, Pengerang Phase 3A is still on track for commencement in FY22, while the group is also targeting to expand its Langsat Terminal facility by another 85,000 cubic metres by mid-FY22. These expansion plans should provide the group with ample growth opportunities in the next one or two years.”
AmInvestment Bank Bhd (AmInvestment Bank) also expect the group’s core earnings to remain on the upward trajectory.
“Towards the end of 2021, Tanjung Langsat 3’s balance 85,000 cubic metres will be operational while another 100,000 cubic metres will commence in 2022. Thereafter, the group still has ample acreage to double its Pengerang storage capacity with a remaining 500-acre zone comprising reclaimable land and the adjoining buffer zone,” it said.