• Dialog has weathered the storm in 2020 with its midstream business cushioning the bad blow as storage terminal utilisation and rates rose
• With the improving global oil price backdrop, we expect earnings to improve as activities gradually resume
• Trimmed our EPS forecasts by 3-5% adjusting for PT2SB income base. Reiterate Buy rating with lower SOTP-based target price of RM3.95

Bad Times Are Over; in a Good Position to Ride the Uptrend

Amid the collapse in global oil prices in 2020, a sharp decline in Dialog’s earnings had been cushioned by its improving storage tank operations, which saw higher utilisation and spot rates as demand rose. Rates rose above SG$7/cbm at the peak and continued to hold at a high level. The spot contract has benefited from a higher renewal rate upon expiry in recent quarters. This and the new capacities (Phase 3A and upcoming Langsat) coming on stream are expected to help drive earnings growth moving forward. We also expect FY22-23 earnings growth to be driven by higher industry activities on the resumption of EPCC jobs, higher maintenance activities and sales of specialist products.

Pengerang 3A Started in March 2021

Dialog recently officiated the Phase 3A opening of its Pengerang Deepwater Terminal (PDT) consisting of 430,000 cbm of capacity for clean petroleum products. The first vessels were received in mid-March 2021. Dialog remains active in securing new customers for its remaining capacity, and this would be an added catalyst.

Trimming Our EPS Forecasts; Reiterate BUY While Lowering TP to RM3.95

We trim our FY21-23 EPS forecasts by 3-5% to discount the PT2SB income base. We continue to like Dialog for its recurring income from the storage terminal business and good execution track record. Given its well diversified revenue portfolio mix, the rising oil price environment would lead to an improvement in downstream activities, and better upstream segment contribution, benefiting Dialog’s earnings. The longterm catalyst lies in its 500-acre land available for development in Phase 3. Reiterate Buy with a lower SOTP-based 12-month TP of RM3.95 (from RM4.13).

Key Risks

Delays in securing new off takers for its Phase 3 development, construction delays affecting the start-up time line, weaker-than-expected storage utilisation and rates and any correction in global oil prices which will lead to prolonged lower industry activities.

Source: Affin Hwang Research - 7 May 2021