PETALING JAYA: Dialog Bhd earnings growth for the fourth quarter of this year and 2021 will be driven by Pengerang Phase 1E’s storage and Tanjung Langsat 3 terminals, according to analysts.
AmInvestment Bank Bhd Research said its forecasts have been marginally adjusted “as we remain sanguine on Dialog’s earnings resilience amid the Covid-19 carnage together with the ongoing oil price down cycle, following our teleconference with management last week.’’
It believed that earnings growth for the fourth quarter of financial year 2020 and FY21 onwards would be driven by the full-year contribution of Pengerang Phase 1E’s storage, which commenced operation in 3Q2019 and Tanjung Langsat 3 terminal’s capacity, of which half commenced in October 2019 and the rest in January 2020.
Dialog had also reviewed its operating expenditures and cut salaries by 5%–25% beginning April this year as a precautionary measure amid expectations of lower service rates from multiple clients, who are bearing the brunt of the unprecedented coronavirus crisis.
Dialog has also not experienced cuts in service day rates nor cancellation of orders, even though some delays occurred for the integrated technical services segment due to constrained workers’ activities for two weeks in April.
RHB Investment Research in its report said storage rates should remain high and this will benefit Pengerang Independent Terminal (PITSB) and Langsat 3 terminals.
Upstream earnings should recover quarter-on-quarter in the second half of this year on higher oil prices.
Phase 3 capacity expansion with its quality clientele, such as National Oil Company and oil majors, remains a key catalyst in the longer run, which will strengthen its recurring business, the research house said.RHB Research has maintained a “buy” on Dialog and so has AmInvestment. To them Dialog is a defensive stock amid trying times given its recurring income business model and return on investment.
RHB said Dialog management told them that independent tank terminal rates improved to S$6.50-S$7.00/cubic metres (cbm) on average in 4QFY20 (April-June 2020), from S$5.50/cbm in 3QFY20. Dialog’s 46%-owned PITSB has been operating at optimal capacity, but is still expected to benefit from elevated storage rates in the near term, upon contract renewal.
The average contract tenure is 12 months.
It added that Kertih Terminals contract has also been renewed for another 10 years to 2030, with lower rates.
“That said, net bottom line impact will be rather minimal, as little capex is required, ’’ RHB said.
It added that it had increased FY20-22F earnings by 3%, 2% and 4% after imputing higher storage rates masking lower engineering, procurement, construction and commissioning revenue.
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