Dialog’s weaker 1Q earnings within consensus

by ANIS HAZIM / graphic by MZUKRI MOHAMAD

DIALOG Group Bhd’s net profit of RM128.8 million in the first quarter of 2022 (1Q22) declined 12.3% year-on-year (YoY) and 7% quarter-on-quarter (QoQ) due to high operating cost on its current projects.

MIDF Research stated the group’s profit was within its and consensus’ full-year of the financial year of 2022 (FY22) earnings estimates at 20% and 21.6% respectively.

Dialog’s revenue for 1Q22 stood at RM505.5 million. which was 52.4% higher YoY but was down 3.2% QoQ.

“The higher revenue was attributable to operations in Malaysia and overseas, which displayed an increase in upstream, midstream and downstream activities in tandem with the recovering economy in general,” MIDF stated in a research note on Dialog yesterday.

Dialog’s upstream activities has profited from the high oil price which balanced in a range bound of US$65 to USD$80 per barrel in 1Q22, as well as its production volume.

According to MIDF, the rallying in crude oil price possibly contributed to the group’s international business.

“Dialog reported an improvement in its overseas operations with increased sales of specialised products and services, in addition to the provision of plant services and supply base activities in Saudi Arabia,” stated MIDF.

At the same time, Dialog’s midstream and downstream activities remain robust.

The newly commissioned Dialog Terminals Pengerang 5 (DTP5) contributed to the higher revenue for the group’s midstream operations, MIDF noted.

Dialog’s operations in Malaysia for the downstream business remain strong with a variety of engineering, construction and fabrication, and plant maintenance projects.

“These projects are reportedly ongoing albeit uncertainties of the pandemic’s impact, supply chain disruption and higher operations cost, which subsequently lowered net profit in 1Q22,” it noted.

Recently, Dialog set up a special purpose vehicle (SPV) with Diyou Fibre (M) Sdn Bhd for its venture into recycled polyethylene terephthalate pellets (recycled PET) production.

“The SPV will sell food-grade recycled PET to food and beverages customers, with a total investment outlay of US$20 million. Dialog expects to use internal funds and borrowings to finance the investment,” MIDF noted.

Additionally, Dialog has invested in a start-up to develop patented technology for carbon capture and utilisation, which will result in the reduction of greenhouse gas emissions.

Dialog is optimistic about its performance for FY22 and remains confident its well-structured business model will sustain through the uncertainty from the Covid-19 pandemic, the oil price volatility and drastic currency movements.

The Pengerang Deepwater Terminals (PDT), which is to be the largest petroleum and petrochemical hub for the Asia Pacific, will continue to be the group’s focus in the near term.

Dialog invested another RM100 million for another 85,000 cubic metre storage capacity for its Dialog Terminals Langsat (DTL).

The group has entered into a joint venture (JV) agreement with Morimatsu Technology and Service Company to collaborate and provide services of critical process equipment, pressure vessels and modular plant/facility solutions from its Pengerang facility.

“We opine that these planned operations will contribute positively for Dialog’s financial performance for the remainder of FY22.

“We are making no changes to our FY22-23F earnings estimates as we opine that at this stage with consideration of the oil and gas outlook in the calendar year of 2022 (CY22) Dialog is on track to meet our FY22 earnings projections,” it said.

MIDF maintained a “Buy” call on Dialog with a revised target price (TP) of RM3.80, pegging a price-earnings ratio (PER) of 32 times to earning per share (EPS23) of 12.1 sen.

“We reiterate our positive view on Dialog for FY22 mainly for its growth potential for its storage tank farm business in PDT and DLT, strong prospects for its upstream and downstream sector, and new initiatives to contribute to the environment and to support the government’s sustainability goals,” the MIDF yesterday stated.