Strong 1Q19 results matched expectations as core earnings grew 28% YoY, led by higher tanker contributions and downstream services. Moving forward, our FY19-20E earnings, which imply growth of 7-14%, are driven by upcoming expansions in Pengerang Phase 1E and 2, while Phase 3 remains a promising longer-term prospect. Reiterate OUTPERFORM at TP of RM3.80 with continued earnings growth delivery as a price catalyst.

Within expectations. 1Q19 core net profit of RM114.5m came in within expectations at 25% of ours, and 24% of consensus full-year forecast. No dividends were announced, as expected.

Overall positive results. YoY, 1Q19 core earnings leapt by 28%, despite lower revenue by 11% due to reduced EPCC works, offset by better tanker contributions from: (i) full consolidation of Langsat Terminals, as compared to 1Q18 where DIALOG owned an effective stake of 44% in Langsat Terminal 1 and 2, coupled with (ii) commencement of operations in Pengerang LNG2 (25% stake) in Nov 2017, thereby boosting its JV and associates’ contribution by 14%.

Sequentially, 1Q19 core earnings also improved by 9% QoQ, in tandem with 14% revenue growth, driven by higher downstream maintenance services and EPCC works.

Still in expansion mode. Post-results, we made no changes to our FY19-20E forecasts, implying earnings growth of 7-14%, driven by (i) Pengerang Dedicated Terminals Phase 2, with expected commencement in 1H CY2019, adding an approximate storage capacity of 2.1m cubic metres, and (ii) Pengerang Phase 1E, which is expected to commence in 2H CY2019, adding an approximate storage capacity of 430k cubic metres, coupled with (iii) full-year earnings from Langsat Terminals’ consolidated accounts and Pengerang LNG2. Post- commencement of Pengerang Phase 1E and 2, the group’s effective storage capacity (measured by the DIALOG’s effective equity stake) would jump by an additional c.48%. As for the longer-term, DIALOG is currently in the midst of securing partners for Pengerang Phase 3, with the land reclamation of 300 acres believed to be currently in progress. With an initial capex of RM2.5b and expected commencement in 5-6 years’ time, we believe Pengerang Phase 3 will eventually add an additional c.5-6m cubic meters of storage capacity.

Reiterate OUTPERFORM, with an unchanged SoP-derived TP of RM3.80. We believe further share price catalyst could still come from: (i) further earnings growth delivery from its recurring tank terminal business and downstream services, coupled with (ii) further concrete developments in Pengerang Phase 3 to drive longer-term growth.

Risks to our call include: (i) unexpectedly lower utilisations in its tank terminals, (ii) delay in EPCC jobs, which could further delay income contributions from upcoming expansions, i.e. Pengerang Phase 1E, 2 and 3, and (iii) delay in the development of Pengerang Phase 3.

Source: Kenanga Research - 13 Nov 2018