PETALING JAYA: Dialog Group Bhd
expects downstream earnings from engineering, procurement, construction, and commissioning (EPCC) contracts to improve with the completion of three projects that saw cost overruns, while turnaround projects are projected to start contributing from the financial year ending June 30, 2026 (FY26) onwards.
CIMB Securities, which has maintained a “buy” call on the stock with an unchanged target price of RM2.52 per share, noted that Dialog currently trades at an undemanding valuation of 18.7 times FY27 price-to-earnings ratio, representing a 28.1% discount to the five-year mean of 26 times.
The brokerage shared that Dialog’s management guided for improving downstream earnings, reaffirming confidence in the recovery of the company’s downstream operations, primarily underpinned by the completion of three legacy EPCC projects.
“With these projects now concluded and the financial impact fully absorbed, Dialog has effectively reset its base, allowing it to shift focus toward internal projects such as the EPCC for 150,000-cubic-metre (cbm) storage for renewable fuels worth RM250mil, with better execution control and margin stability.
“While any potential cost reversals may emerge as upside surprises, Dialog clarified that these are not a key focus at this stage.”
CIMB Securities said the downstream business would continue to be supported by ongoing maintenance contracts for onshore processing plants, providing a reliable source of recurring income.
Earnings from the company’s joint venture (JV) with Morimatsu Technology and Service Co, which recently commenced operations, remains minimal due to its early stage but could reach annual revenues of up to RM300mil at full capacity within five years.
“A key earnings growth driver for Dialog’s downstream segment (is the) upcoming onshore plant turnaround activities by Petroliam Nasional Bhd (PETRONAS), which are expected to begin contributing meaningfully from FY26 onwards.
“Dialog confirmed preparatory works related to these turnaround projects have already commenced, and discussions are currently underway with clients on the scope and execution timeline,” it added.
New growth prospects for Dialog lie in EPCC opportunities related to the proposed expansion of the Pengerang Terminals Two Sdn Bhd (PT2SB) facility.
This will add 272,000 cbm of storage capacity to support a newly planned biorefinery by a JV between PETRONAS (42.5%), Eni SpA (42.5%), and Euglena Co Ltd (15%).
“Total investment for the terminal expansion is estimated at around RM1.4 billion,” CIMB Securities said.
Dialog’s downstream business would get a significant boost should it secure the EPCC project from PT2SB, given an estimated contract value of RM960mil to RM1bil.
The company also has two other EPCC projects in advanced stages of discussion.
The earnings outlook for the midstream business “is expected to remain stable, supported by high terminal utilisation rates of over 90% and steady spot storage rates, which continue to range between S$6 to S$6.50 per cbm”.
Production volumes from the domestic upstream business are expected to normalise from 1Q of FY26 onwards following the completion of scheduled maintenance activities.
