Maybank IB Research says Dialog’s PDT Phase 3 project is gaining traction post-pandemic and will anchor the group’s growth over the next 10 to 15 years.
PETALING JAYA: Research firms believe Dialog Group Bhd
’s development of Pengerang Deepwater Terminals (PDT), located at the southern tip of Peninsular Malaysia and spanning 1,200 acres, to its full potential could be its key long-term growth driver.
In a report, Maybank Investment Bank (Maybank IB) Research said Dialog’s PDT’s Phase 3 project, earmarked for long-term downstream and dedicated terminal operations, is gaining traction post-pandemic and will anchor the group’s growth over the next 10 to 15 years.
It said Dialog has been actively engaged with multiple prospects to invest there.
“Dialog reiterates that it has no intention of selling and monetising its real estate there for a quick profit,” said Maybank IB Research.
According to Hong Leong Investment Bank (HLIB) Research, Dialog will continue to benefit from the PDT’s development due to its exposure in tank terminals, engineering, procurement, construction and commissioning (EPCC), and maintenance services.
HLIB Research noted that the 430,000 cubic-metre storage capacity under Phase 3A of PDT was commissioned in Feb 2021.
“With the easing of international travel restrictions in financial year 2023 (FY23), we see Dialog as a beneficiary as PDT will be able to welcome foreign clients and investors, potentially boosting Dialog’s downstream EPCC and midstream take-or-pay tank terminals businesses,” it said.
It added that Dialog is negotiating with clients for reimbursement and compensation for the project overruns caused by inflationary pressures and external macroeconomic factors.
Kenanga Research believes Dialog’s long-term prospects remain intact owing to the new developments in PDT’s Phase 3, which could act as a re-rating catalyst.
Dialog, on Tuesday, reported its first quarter results for the financial year 2023 (1Q23), as of Sept 30, with its revenue surging by over 40% year-on-year to RM711.7mil, boosted by higher downstream activities.
Net profit, however, dipped to RM125.79mil from RM128.82mil in 1Q23 due to cost overruns for the largest tank terminal operator in Malaysia with EPCC work services.
Commenting on Dialog’s results, CGS-CIMB Research said the group is “still not showing sequential profit growth”.
“Dialog’s core net profits have been treading water at the RM120mil to RM130mil level for the past eight quarters, down from the pre-Covid-19 peak quarterly profit of RM158mil in 2Q20,” it noted.
The research house added that Dialog’s share price direction will heavily depend on how it addresses the cost pressures and whether it succeeds in obtaining partial compensation from its EPCC clients.
“Any potential new long-term contract signings for Phase 3 could also cheer investors, although we should caution that Dialog did say that negotiations are only in the early stages,” it added.
Meanwhile, MIDF Research believes that despite Dialog’s unfavourable start to FY23, its businesses will continue to be resilient amid the challenging economic times.
“Considering the stable oil price trend is expected for calendar year 2023, we believe the group’s performance is on the right track,” MIDF Research said.
Taking into account Dialog’s 1Q23 results and the current volatile environment in the oil market, MIDF Research made downward changes to its FY23 and FY24 earnings estimates of 2% and 2.5%, respectively.
MIDF Research and CGS-CIMB Research maintained “buy” and “add” calls on Dialog’s stock, but both research houses lowered their target prices (TPs) to RM3.70 and RM2.60 from RM3.96 and RM2.63 per share, respectively.
HLIB Research, maintained a “buy” call on the stock, but increased its TP by four sen to RM3.04 per share.
Maybank IB Research and Kenanga Research reiterated their “buy” and “outperform” calls on the stock and maintained their TPs of RM4.90 and RM3.10 per share.
