KUALA LUMPUR: RHB research remains bullish on Dialog Group Bhd
for its defensive earnings base, anchored by a diversified portfolio of recurring earnings sources.
In a research note, RBH said growth in Dialog's earnings is relatively certain to come over the next two years, driven by tank terminal capacity expansions in Pengerang.
The group remains RHB's top pick in the Malaysian oil and gas sector coverage, being the only large-cap KLCI stock with a direct proxy to the Refinery & Petrochemical Integrated Development project.
"Whilst the details are not yet announced, we are aware that Pengerang Phase 3 – with an indicative capex of MYR2.5bn – will proceed post-completion of Phase 2.
"Land reclamation works for the project have commenced, and discussions with potential customers have kicked off," it said.
RHB said it has factored in an additional five million cubic metres capacity for the Phase 3 tank terminals with partial commencement expected in 2022, and Dialog's stake assumed at 25%.
Meanwhile, Pengerang Phase 1 is currently under expansion for an additional 430,000 cbm capacity while Phase 2 has begun commercial operations with 0.7cbm out of its total planned capacity. Full completion is expected in 1QFY19.
In an earnings announcement yesterday, Dialog's 1HFY17 core profit came in at RM251.4mil within its and consensus estimates.
"Core profit surged by 24% YoY in 1HFY19, mainly underpinned by stronger upstream earnings coupled with a maiden earnings contribution from the partial start-up of the Pengerang Phase 2 dedicated tank terminal (0.7m cbm capacity out of a total 1.3m cbm).
"QoQ, core profit improved 20% in 2QFY19 due to the start-up on Pengerang Phase 2 in Nov 2018. This was partially offset by a weaker contribution from its international businesses, due to stiffer competition," said RHB.
The research house maintained its buy call with a target price of RM4.13.