Cost recovery efforts are ongoing which HLIB Research deems as an upside surprise if successful.
PETALING JAYA: Dialog Group Bhd
can expect sequential margin expansion in the coming quarters for its downstream business, which will contribute positively to its bottom line.
All loss-making legacy engineering, procurement, construction and commissioning (EPCC) contracts contributing to margin squeeze in the downstream segment will be completed by the end of mid-calendar year 2024 (CY24).
Although discussions will unlikely be concluded in the near-term, costs recovery efforts are ongoing which Hong Leong Investment Bank (HLIB) Research deems as an upside surprise if successful.
Apart from the loss-making EPCC, the plant maintenance segment is barely profitable, due to cost escalations over the past few years since the group secured the five-year master service agreement (MSA) from PETRONAS in 2019.
The MSA is due for expiry in mid-CY24 and will likely be renewed at a higher rate to match pre-Covid margins.
HLIB maintains its “buy’’ call with a target price of RM2.66 a share. It said it likes Dialog for its recurring income business model and its unique position in riding the future expansion of Pengerang via development of tank terminals.
The group may secure new long-term dedicated storage tank terminal contracts for its PDT Phase 3 with approximately 500 acres available for future development.Its upstream segment sees a stronger earnings base due to higher production from the Bayan field as T7 Elise Mopu achieved its first gas in July.
The master service agreement with PETRONAS that is due for expiry in mid-May, will likely be renewed at higher rates to match pre-Covid margins.
