Slow recovery for Dialog

Analysts say Dialog’s revenue should see a recovery but will be milder than expected

PETALING JAYA: Profits that disappointed investors third time in a row reiterates expectations that recovery will be slow for integrated technical services provider Dialog Group Bhd.

The company which provides services for the oil and gas and petrochemical industries reported a 17.2% year-on-year decline in its third quarter (Q3) of financial year 2021 (FY21), with core net profit coming in at RM125mil after stripping out an RM11.2mil forex gain. Revenue for the quarter under review was RM405.2mil.

Analysts said while they forecast stronger revenues ahead, a slower recovery is on the cards for Dialog.

UOB Kay Hian Research said potentially, Dialog’s revenue should see a recovery especially in the engineering, procurement, construction and commissioning (EPCC) segment, and its downstream maintenance business.

“Nevertheless, in view of renewed lockdowns and consistent underperformance, we assume revenue recovery will be milder than expected, ” the research house told its clients in a report.

It pointed out that since Q1 of FY21, Dialog had consistently missed market expectations from the initial forecast of RM650mil, despite having a diversified business model.

Although our forecasts are already below consensus, we cut forecasts further on lower Pengerang (Deepwater Terminal) Phase 1 earnings, slower revenue recovery and higher costs, although (this) is offset by lower taxes and finance costs, said UOB KayHian.

Lowering its target price for the stock to RM3.40 from RM3.65, it maintained its “buy” call, stating that the overall downgrade in the target price for Dialog, arises from lower valuations across the board due to earnings revision, lower storage rate assumption for Pengerang and lower oil price assumption.

It added that it still liked Dialog “as a safe haven investment and well-diversified business model”, although it continues to have a wait-and-see approach as Dialog’s sentiment will be heavily tied to the Pengerang Refining and Petrochemical (PRefChem), which is a strategic alliance between Petronas and Saudi Arabia’s national oil company, Saudi Aramco.

“Our buy angle is premised on no more further delays of PRefChem’s startup from Q3 of FY21, ” UOB Kay Hian said.

In its report meanwhile, PublicInvest Research said it was trimming its FY21-23 earnings forecast for Dialog by an average of 7.2% to account for weaker contribution from its downstream segment.

“Our Outperform call on Dialog is maintained with a revised target price of RM3.86 from RM4.05 previously, ” it said, adding that it still liked Dialog for its strong track record, defensive business model and steady recurring income generation from its tank terminal business, ” PublicInvest Research said.

At last look, the Dialog stock was at RM2.88 apiece, valuing the whole company at RM16.3bil.

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