Investment Highlights

• We maintain BUY on Dialog with an unchanged sum-of-part based fair value (FV) of RM2.97/share, which implies 1-yea forward PE of 27x - 8% above its 10-year average of 25x . Our fair value also reflects a neutral 3-star ESG rating .

• We maintain our earnings forecast pending a post-resul meeting with management later today.

• The group reported FY24 core net profit of RM611m (excluding impairment of investment in joint venture, forex gains and fair value loss on investments of RM36mil), which came in broadly within expectations - 4% above our forecas and 3% ahead of consensus.

• Additionally, the group declared a final dividend per share (DPS) of 2.8 sen which brought the full-year to 4.3 sen, a 16% YoY increase. This implies a payout of 42% and is broadly in line with FY23 levels.

• YoY, FY24 revenue rose by 5% from core operations with boost from 60%-owned Jubail Offshore Supply Base in Saudia Arabia, whose contribution jumped by 23% from increased activities throughout the year. FY24 CNP rose by larger 21% from higher pre-tax margins in Malaysia and Middle East, which we believe stems from declining losse from the group’s legacy engineering, procurement construction, and commissioning (EPCC) projects and improving economies of scales.

• QoQ, 4QFY24 CNP grew sequentially by 10% to RM166m despite topline growth of 15% as pre-tax margin was dragged by legacy EPCC projects during the quarter. Support wa seen mainly from the group’s 50%-owned L53/48 concession in Thailand, which recorded improved pre-tax margins b 12.6%-pts as production returned to normalised levels.

• Notably, the group made a RM22.5mil impairment to it recycled polyethylene terephthalate (rPET) plant in Neger Sembilan. Recall that in 2021, the group entered a join venture with Diyou Fibre to build, own and operate a food grade rPET pellets production facility for a total investmen cost of US$25mil (RM106mil).

• The impairment is mainly due to weak market condition stemming from the delay in the implementation of plastic ta in main markets in US and EU, as well as low usage of rPET among multinational corporations.

• We see upside potential to Dialog as it trades at a compelling FY26PE of 21x, still below its 10-year mean of 25x, which is unjustified given its long-term recurring cash flow-generating businesses, further underpinned low net gearing levels.

Source: AmInvest Research - 16 Aug 2024