Maybank IB is raising its FY24-26E core net profit forecasts by +4%/+4%/+1% for Dialog, mainly to account for an increase in its LT independent tank terminal rates to SGD6.3/m3/month (from SGD5.7/m3/month). Coupled with rolling over the base year to FY25E, the TP is lifted to MYR2.60 (from MYR2.43).
The house said it remains positive on Dialog’s operational/financial stability from its dedicated midstream tank terminal assets. Maintain BUY. It also expects sequential QoQ earnings growth in 3QFY24. In 2QFY24, Dialog’s EBIT margin continued to improve to 14.2% (+4.2 ppts from 10.0% in 1QFY24) and we believe that this was due to 2 key reasons: higher tank terminal rates at SGD6.5/m3/month; and ii) gradual completion of its loss-making legacy downstream EPCC contracts (which were signed during the COVID-19 pandemic). However, 2QFY24 was impacted by the recognition of a non-cash deferred tax entry amounting to c.MYR20m. Checks have indicated that rates have remained stable at SGD6.0 6.5/m3/month at a utilisation rate of >90% in 3QFY24, coupled with lower losses from its downstream segment, Maybank IB expects another QoQ earnings growth in its next reporting quarter.
Will Dialog benefit from Pengerang Energy Complex?
ChemOne, the master developer of Pengerang Energy Complex (PEC), has confirmed that execution works have commenced to build a 6.5m MTpa facility, which is capable of processing 150kbpd of condensate plus side feed of naphtha, that will, in turn, produce aromatics of 2.3m MTpa, energy products output of 3.9m MTpa and hydrogen output of 50k MTpa. The estimated total capex stands at about USD5b. We think that Dialog may benefit from both/either: i) EPCC/sub-contracting works for the facility; or ii) the need for tank terminals for storage of products after the completion of PEC (estimated 2027).
Key catalyst for growth will still be Pengerang
Developing Pengerang to its full potential remains a key catalyst for Dialog’s LT growth, in our view. Recent news flows have indicated the potential entry of China’s largest petrochemical company, Rongsheng Petrochemical with an estimated commitment of MYR80b for a refining facility in Pengerang – which the house said it strongly believes will benefit Dialog because of the need for storage for crude/refined/distilled products.
