CIMB Equities Research expects Dialog Group Bhd to deliver strong earnings growth from next year onwards.
KUALA LUMPUR: CIMB Equities Research expects Dialog Group Bhd
to deliver strong earnings growth from next year onwards, as several of its major projects reach their commissioning stage.
It said on Wednesday that most recently, the LNG regasification plant at Pengerang SPV3 officially began commercial operations on Nov 1, and took delivery of its first commercial cargo on Nov 10.
“Construction progress on Pengerang SPV2 is slightly ahead of schedule, and should begin earning some revenue from midCY18F, before its official commissioning slated in early-CY19F,” it said.
To recap, CIMB Research said on Aug 18, Vopak kicked-off the expansion of Pengerang SPV1’s capacity of 1.3 million cubic metres (cbm) by another 430,000 cbm, to be commissioned progressively from 1QCY19F. It expects another 570,000 cbm to be added by FY20F.
On Nov 10, Dialog signed a 30-year land lease to develop an additional 300,000 cbm at Langsat 3, expanding from the current Langsat 1 and 2 capacity of 647,000 cbm.
“We expect Langsat 3 to be ready by FY20F. Dialog is confident it can take business from Singapore to fill up the new capacity,” it said.
CIMB Research said Dialog noted that it is “securing new potential partners for Phase 3… which will be developed on 800 acres comprising reclaimable land and the buffer zone”.
“A future announcement to this effect will likely to have a powerful positive impact on its share price, in our view. Downside risks include delays to future developments,” it said.
Commenting on the 1QFY18 core net profit of RM88.5mil, it said it rose 42% on-year, driven by much higher engineering, procurement, construction and commissioning (EPCC) revenue of RM410mil vs. only RM73mil in 1QFY17.
“We believe this was related to the timing of revenue recognition for the ongoing Pengerang SPV2 and SPV3 projects.
“Also, Dialog probably booked more plant maintenance revenue on-year, partially offset by lower upstream earnings. Sales of specialty products was weaker in Malaysia, but stronger overseas.
“The tank terminals business, which was represented in 1QFY18 by the 30%-owned Kertih terminal, 44%-owned Langsat terminals, and 46%-owned Pengerang SPV1 terminal, was stable, with Dialog’s share of JV profits amounting to RM27mil in 1QFY18, up slightly from RM25mil in 1QFY17, but down slightly from RM28mil in 4QFY17.
“These profit fluctuations are minor, in our view, and may be due to small changes in utilisation, the volume of throughput, the level of ancillary services performed, or exchange rates,” it said.
CIMB Research said in late-September, Dialog purchased MISC’s 36% effective stake in the Langsat terminals, for RM137mil, and also took over MISC’s shareholder loans of RM56mil.
This raised Dialog’s stake in the Langsat terminals from 44% to 80%. Hence, the balance sheet of the Langsat terminals were consolidated into its Sept 30 2017 accounts, and their earnings will be consolidated from 2QFY18F onwards.
“Dialog also booked RM65.6mil in fair value gain from the exercise, which we have classified as an exceptional item,” it said.
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