MIDF Research has slashed its earnings estimate for Dialog Group Bhd for the financial year ending June 30, 2023 (FY2023) by 2%, and that of FY2024 by 2.5%, in view of its results for the first quarter of FY2023 and the current volatility in the oil market.
The research house also revised downwards its target price (TP) for the oil and gas company from RM3.96 to RM3.70.
It said Dialog’s earnings dropped by 2.4% year-on-year (y-o-y) but gained 6.4% quarter-on-quarter (q-o-q) to RM125.8 million, which came in below its expectations at 18% of its full-year forecast, and 21% of the consensus.
The lower y-o-y earnings were due to higher project and operation costs, as well as the share of profit from newly acquired joint-venture company Pan Orient Energy (Siam) Ltd.
Nevertheless, the group reported a surge in revenue of 40.8% y-o-y and 5.3% q-o-q to RM711.7 million, attributable to increased activities in local and international operations.
“The economic environment is expected to remain challenging for Dialog, but we remain confident that the group will continue to focus on its long-term strategies and sustainable business model against the risk of uncertainties in the global economy, crude oil prices and currency movements,” the research house said in a note.
Meanwhile, Maybank Investment Bank Bhd retained its earnings forecasts for Dialog, anticipating stronger quarters ahead, arising from higher upstream profits.
It sees Dialog achieving a core net profit of RM605 million for FY2023, and RM658 million for FY2024.
It believes Dialog’s y-o-y growth in FY2023 will be fuelled by the contribution of its 100%-owned producing, upstream, onshore oil field asset in Thailand, Pacific Orient Energy Corp (POEC), and lower operating expenditure as pandemic-led and supply chain issues dissipate.
“Based on our back-of-the-envelope calculations, the expected payback period for POEC is relatively short, at two to four years, based on a conservative crude oil profit of US$10-US$20 per barrel.
Kenanga Research, meanwhile, also made no changes to Dialog’s FY2023-24 numbers.
“Dialog’s 1Q results were largely flattish, coming in within expectations. While revenue was boosted by higher downstream activities, cost overruns continued to drag earnings.
“Going forward, we believe the group’s long-term prospects remain largely intact, with further developments in Pengerang Phase 3 to act as a potential rerating catalyst,” it said.
Kenanga Research maintains its “outperform” call on Dialog, with a TP of RM3.10 per share.
