PETALING JAYA: Dialog Group Bhd ’s expansion projects are on track and nearing completion, with Pengerang Phase 2 joint-venture (JV) profit contributions expected to commence in the second half of the year.
According to a UOB KayHian report, the Pengerang Terminal Phase 2 (PT2SB), which has 1.3 million cubic metres dedicated to the Refinery and Petrochemical Integrated Development’s requirements, is expected to complete all commissioning phases by the middle of the year.
As such, the JV profits will have strong growth, as these new growth projects are to contribute immediately in the first quarter of the financial year ending June 30, 2020 (1Q20).
Apart from that, new growth projects in Langsat 3 and Pengerang Phase 1E are near completion for full start-up by 1Q20.
The new 100,000-cubic-metre storage capacity for Langsat 3 terminal is at 80% completion, while another 200,000 cubic metres are still open for negotiations.
The Pengerang Phase 1E expansion (430,000 cubic metres), meanwhile, is undergoing commissioning and is at 80% completion for the targeted start-up from the second half of 2019.
However, revenue is expected to decline in financial year 2019 (FY19) due to the completion of PT2SB’s RM5.5bil engineering, procurement, construction and commissioning (EPCC) in December last year, a significant EPCC project for the group. Additionally, Dialog is still executing the EPCC for several other projects, including the Pengerang Phase 1E expansion.
“In tandem with its normal business model, these projects will transition from EPCC to recurring income from the fabrication and maintenance phases (O&M) for downstream projects, which has been growing at 10% to 15% per annum.
“Nevertheless, management has hinted that the maintenance income is not sufficient to offset the drop in EPCC profits in the near term.
“Overall, we project an almost flattish year-on-year (y-o-y) earnings before interest, tax, depreciation and amortisation growth, given that the EPCC shortfall will be adequately covered by maintenance income and the full consolidation of the Langsat terminal earnings into revenue since mid-1Q18,” said UOB KayHian.The research house’s new profit forecasts assume a y-o-y growth of 17%, 19% and 11%, respectively, as compared to Dialog’s guidance for a 10% to 15% growth.
This is mainly due to UOB KayHian’s upgrade to JV earnings as Phase 2’s take-of-pay earnings will not be materially impacted by the resized capacity to 1.3 million cubic metres.
In comparison, Dialog’s first-half FY19 and FY18 core earnings recorded a y-o-y growth of 24% and 31%, respectively.
“We believe these growth rates are achievable due to the on-schedule commissioning of the JV projects, which will significantly drive group earnings growth in the near term.
“This is slightly offset by our lower FY19 revenue forecast, from RM3.1bil to RM2.8bil, due to EPCC, until Dialog secures offtakers for Pengerang Phase 3,” said UOB KayHian.
The research house projects revenue to recover by FY21, as it expects Dialog to secure new EPCC projects and potential fabrication-related works for O&G decommissioning demand across the region.