DIALOG (7277) : RHB Research retains Buy on Dialog but lower target price
KUALA LUMPUR: RHB Research is maintaining its Buy recommendation for Dialog Group but reduced its sum-of-parts (SOP) target price to RM1.65 (an upside of 31%) as it adjusts its oil price assumption and lower the target price-to-earnings (P/E) for its core business to 19 times from 22 times.
While Dialog’s small exploration and production (E&P) contribution at only 10% of the research house’s SOP) demonstrates its defensive value in current environment, it said on Wednesday.
The research house trimmed its profit forecasts given its exposure to international contracts. Its stress test scenario target price is at RM1.40.
Dialog is an integrated multi-discipline technical service provider with three distinct segments: i) services for downstream customers, ii) midstream storage tank terminal, iii) upstream E&P activities. It is also an exclusive agent for specialist products.
RHB Research said post the oil price slump in end-2008 (Dialog’s FY ending is in June), its revenue for FY09/FY10/FY11 revenue grew 40%/3%/6% respectively.
Local plant maintenance activities surged and its Tanjung Langsat, Johor tank terminals commenced operations. The reduction in FY10 revenue growth was mainly due to lower activities in its contracts for international customers.
Today, in its first quarter ended Sept 30, 2014, Dialog’s revenue has 49% exposure to non-Malaysian customers. Higher sales of specialist products and logistics services in Jubail port, Saudi Arabia were offset by lower activities in Singapore and New Zealand.
“We cut our FY15F-FY17F core profit forecasts by 4%-10%, which are now 2%-7% more conservative versus consensus. Our revenue growth also falls by 2%-9%. We expect revenue accretion from further operational phases of its tank storage terminals, and contributions from E&P activities – all these will also partially benefit its engineering services locally.
“Excluding these would result in our revenue growth assumption of 6% per annum, which mainly reflects our conservatism on international contracts for its plant maintenance, fabrication and engineering services,” said the research house.
RHB Research said its SOP target price was reduced to RM1.65 from RM2 based on its new oil price assumptions of US$75 to US$85 a barrel for 2015 and US$90 to US$100 for 2016/2017 (versus US$90 to US$100 for all years).
The research house also cut its target P/E to 19 times from 22 times for core services to account for the aforementioned risks in international activities.
“While the stock may be increasingly driven by offshore developments, the current levels do not reflect its defensive nature from its location advantage and concession-nature of its tank terminal/ logistic business. The risk would be worse-than-expected costs, given the company’s expansion,” it said.
http://www.thestar.com.my
KUALA LUMPUR: RHB Research is maintaining its Buy recommendation for Dialog Group but reduced its sum-of-parts (SOP) target price to RM1.65 (an upside of 31%) as it adjusts its oil price assumption and lower the target price-to-earnings (P/E) for its core business to 19 times from 22 times.
While Dialog’s small exploration and production (E&P) contribution at only 10% of the research house’s SOP) demonstrates its defensive value in current environment, it said on Wednesday.
The research house trimmed its profit forecasts given its exposure to international contracts. Its stress test scenario target price is at RM1.40.
Dialog is an integrated multi-discipline technical service provider with three distinct segments: i) services for downstream customers, ii) midstream storage tank terminal, iii) upstream E&P activities. It is also an exclusive agent for specialist products.
RHB Research said post the oil price slump in end-2008 (Dialog’s FY ending is in June), its revenue for FY09/FY10/FY11 revenue grew 40%/3%/6% respectively.
Local plant maintenance activities surged and its Tanjung Langsat, Johor tank terminals commenced operations. The reduction in FY10 revenue growth was mainly due to lower activities in its contracts for international customers.
Today, in its first quarter ended Sept 30, 2014, Dialog’s revenue has 49% exposure to non-Malaysian customers. Higher sales of specialist products and logistics services in Jubail port, Saudi Arabia were offset by lower activities in Singapore and New Zealand.
“We cut our FY15F-FY17F core profit forecasts by 4%-10%, which are now 2%-7% more conservative versus consensus. Our revenue growth also falls by 2%-9%. We expect revenue accretion from further operational phases of its tank storage terminals, and contributions from E&P activities – all these will also partially benefit its engineering services locally.
“Excluding these would result in our revenue growth assumption of 6% per annum, which mainly reflects our conservatism on international contracts for its plant maintenance, fabrication and engineering services,” said the research house.
RHB Research said its SOP target price was reduced to RM1.65 from RM2 based on its new oil price assumptions of US$75 to US$85 a barrel for 2015 and US$90 to US$100 for 2016/2017 (versus US$90 to US$100 for all years).
The research house also cut its target P/E to 19 times from 22 times for core services to account for the aforementioned risks in international activities.
“While the stock may be increasingly driven by offshore developments, the current levels do not reflect its defensive nature from its location advantage and concession-nature of its tank terminal/ logistic business. The risk would be worse-than-expected costs, given the company’s expansion,” it said.
http://www.thestar.com.my
