Dialog reported a 17.2% YoY decline in 3QFY21 results with core net profit of RM125m after stripping out an RM11.2m forex gain. The weaker number is attributed to a top line contraction of 19.8% YoY due to lower contributions from its downstream businesses domestic and internationally. The Group’s JV and associate’s contribution, mainly from its tanks terminal business, has partially offset the impact as contribution rebounded after being impacted by deferred tax provisions in the previous quarter. Cumulatively, the Group reported a 15.4% YTD decline in core net profit to RM373.6m, meeting only c. 65% of our and consensus full-year projections. We trim FY21-23 earnings forecast 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 TP of RM3.86 (from RM4.05 previously). We still like Dialog for its strong track record, defensive business model and steady recurring income generation from its tank terminal business.

• QoQ results highlight. Dialog reported a sequential improvement in its 3QFY21 results, supported by JV and associate contribution. Core net profit improved 4.8% to RM125m. Lower revenue and net profit recognition have however been seen in its downstream activities i.e. specialist product and services as well as catalyst handling due to reduced business activities as a result of market conditions being exacerbated by the prolonged Covid-19 pandemic. Nonetheless, favourable performance from fabrication activities in international market cushioned the impact.

• Higher terminals contribution. The Group’s terminals businesses continue to run well with JV and associate contribution rebounding 123.9% QoQ to RM62.7m. The previous quarter was dragged by a deferred tax charge for Pengerang Terminals Two amounting to approximately RM30m – RM40m. Utilisation rate remains at 90% - 100%, with steady rates. Recall, tank terminal spot rates are up from SGD5– 5.5/cbm pre-COVID levels to SGD6.5–7/cbm currently. Moving forward, this segment will continue to provide stable income stream with the commencement of Terminals 5 in March 2021 with storage capacity of 430,000 m3 dedicated for BP Singapore.

• Dividend. An interim dividend of 1.2sen per share for FY2021 has been declared in this quarter and is to be paid on 29 Jun 2021.

Source: PublicInvest Research - 20 May 2021