Dialog Group Bhd (Nov 17, RM2.46)
Maintain outperform at RM2.40 with fair value of RM3.51: Net profit for 3MFY12 of RM44.5 million was largely within expectations, accounting for 21.5% of our (RM206.8 million) and 22.6% of consensus (RM197.1 million) estimates.
There was a quarter-on-quarter deterioration in revenue (-5%) and earnings before interest and tax (-22.4%), likely caused by: (i) the reduction in major engineering and construction work as the Pengerang tank terminal project is still in the early stages; and (ii) incremental costs to kick-start the Pengerang tank terminal project has led to a slight margin squeeze. However, the company’s strong associate earnings (+36.3%) mitigated the impact to bottom line earnings (-0.7%). We believe the higher associate earnings was likely due to the start-up of Phase 3 of Tanjung Langsat 1 which we understand was completed in August. Tanjung Langsat 2 is expected to be completed in December.
The company has its hands full with upcoming projects: (i) Phase 1 of the Pengerang deepwater tank terminal project; and (ii) Balai cluster marginal field development. It is also looking to complete its fundraising exercise (rights issue on the basis of two rights shares plus one free warrant for every existing 10 shares held) by 1QCY12 and hopes to secure another marginal field project when tenders are opened in CY12.
We maintain our earnings estimates. Risks include: (i) fall in crude oil prices that could result in oil and gas majors delaying/cancelling projects which will affect growth in Dialog’s core operations; (ii) delays to start-up timelines of projects in hand; and (iii) heightened competition as other companies emulate Dialog’s business model.
Dialog remains one of our favourites in the oil and gas sector given the: (i) long-term project visibility; (ii) resilience of the tank terminal business during a downturn; (iii) conservative risk management which underpins the success of its ongoing and upcoming projects; and (iv) apparent strong linkage to Petroliam Nasional Bhd. As such, we maintain our “outperform” call on the stock and our sum-of-parts-based fair value of RM3.51 per share. — RHB Research, Nov 17
This article appeared in The Edge Financial Daily, November 18, 2011.
Maintain outperform at RM2.40 with fair value of RM3.51: Net profit for 3MFY12 of RM44.5 million was largely within expectations, accounting for 21.5% of our (RM206.8 million) and 22.6% of consensus (RM197.1 million) estimates.
There was a quarter-on-quarter deterioration in revenue (-5%) and earnings before interest and tax (-22.4%), likely caused by: (i) the reduction in major engineering and construction work as the Pengerang tank terminal project is still in the early stages; and (ii) incremental costs to kick-start the Pengerang tank terminal project has led to a slight margin squeeze. However, the company’s strong associate earnings (+36.3%) mitigated the impact to bottom line earnings (-0.7%). We believe the higher associate earnings was likely due to the start-up of Phase 3 of Tanjung Langsat 1 which we understand was completed in August. Tanjung Langsat 2 is expected to be completed in December.
The company has its hands full with upcoming projects: (i) Phase 1 of the Pengerang deepwater tank terminal project; and (ii) Balai cluster marginal field development. It is also looking to complete its fundraising exercise (rights issue on the basis of two rights shares plus one free warrant for every existing 10 shares held) by 1QCY12 and hopes to secure another marginal field project when tenders are opened in CY12.
We maintain our earnings estimates. Risks include: (i) fall in crude oil prices that could result in oil and gas majors delaying/cancelling projects which will affect growth in Dialog’s core operations; (ii) delays to start-up timelines of projects in hand; and (iii) heightened competition as other companies emulate Dialog’s business model.
Dialog remains one of our favourites in the oil and gas sector given the: (i) long-term project visibility; (ii) resilience of the tank terminal business during a downturn; (iii) conservative risk management which underpins the success of its ongoing and upcoming projects; and (iv) apparent strong linkage to Petroliam Nasional Bhd. As such, we maintain our “outperform” call on the stock and our sum-of-parts-based fair value of RM3.51 per share. — RHB Research, Nov 17
This article appeared in The Edge Financial Daily, November 18, 2011.
