Dialog’s earnings likely to be flat on slowdown

Kenanga Research said it would be difficult for Dialog to replicate its double-digit earnings growth for now.

PETALING JAYA: For most companies, next year will be mildly challenging and Dialog Group Bhd is no exception, given the slowdown in demand for downstream services.

Several analysts expected flattish earnings for the current financial year (FY) ending June 30,2021 after Dialog reported an 11% decline in net profit to RM146mil for first quarter ended Sept 30, from RM164mil a year earlier.

This forced some analysts to review their earnings forecast and target price.

Kenanga Research said it would be difficult for Dialog to replicate its double-digit earnings growth for now.

However, the resilience of its midstream terminal businesses may still provide a defensive baseline to earnings.

CGS-CIMB has forecast FY21 core net profit to decline 8% (to RM558mil) year-on-year despite the full-year contribution from SPV1E (phase 1E expansion of the SPV1 terminal) and Langsat 3. But it expected FY22 core net profit to recover 34% (to RM748mil).

“For the upstream assets, we have pencilled in an average oil price of US$41/barrel of oil (bbl) in 2020 and recovering to US$49/bbl in 2021 on expectations that Covid-19 vaccines will help oil demand recover, ’’ the research house said.

UOB Kay Hian has cut FY21-23 net profit forecast by 7% (to RM593mil), 8% (to RM656mil) and 9% (to RM687mil) respectively, mainly on lower revenues.

“We cut revenue forecasts as the first quarter FY21 volatility trend from downstream activities is worrying, ’’ the research house said.

AmInvestment Research added that Dialog’s FY21 earnings would be underpinned by the full-year contribution of Pengerang Phase 1E’s 430,000 m3 storage, which commenced operation in third quarter 2019, and Tanjung Langsat 3 terminal’s initial 120,000 cubic metres capacity, of which half commenced in October 2019 and the rest in January 2020.MIDF Research is not making any changes to its FY21-22 earnings estimates for now as it believes Dialog is on track to meet its FY21 earnings projection.

Moving ahead, Kenanga said Pengerang Phase 3A is on track for commencement in FY22, while the group is also targeting to expand its Langsat Terminal facility by an aaditional 85,000 cubic metres by mid-FY22.

These expansion plans should provide the group with ample growth opportunities beyond the immediate one to two years, it added.

On top of that, Dialog still has 500 acres of land available for future development in the Pengerang area.

CGSCIMB said the potential re-rating catalysts included new customers at Pengerang and the launch of new development phases at PP3 and Langsat 3.

The downside risks included the potential for significant Opec+ production cuts that may reduce the utilisation of Dialog’s SPV1 and Langsat tank terminals.

The research house said Dialog has a RM3bil war chest to pursue growth. It cut earnings and also target price (TP) at RM4.91 a share from RM5.35 a share.

Kenanga has raised its TP to RM4.35 a share, while AmInvestment has a “buy” call with a TP of RM4.80, down five sen.

MIDF raised its TP to RM4.30 from RM4.11 and UOB Kay Hian maintained its “hold’’ and reduced its TP to RM3.70 a share from RM3.85 a share.

Dialog closed 11 sen lower to RM3.76 in yesterday’s trading.

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