Tuesday 14 August 2012

Dialog Group - Slightly Beating Estimates


Dialog’s FY12 results were slightly above our expectations but well below consensus, accounting for 101.9% and 90.8% of both estimates respectively. The stronger sequential numbers were attributable to higher contributions from its engineering and construction activities in Malaysia following the finalization of some major projects. Maintain BUY, with a revised FV of RM3.16, based on our newly fine-tuned sum of parts valuation pegged to FY13 estimates. We like the stock as it is one of the most defensive O&G stocks in its sector, backed by a sound business model.
Within our expectations. Dialog’s FY12 results were slightly ahead of our expectations but well below consensus, accounting for 101.9% and 90.8% of both estimates respectively. However, EBIT margin shrank from 13.5% in FY11 to 10.6% in FY12, probably due to the timing in the recognition of higher margin contracts. We believe this was also due to higher contributions from its engineering and construction activities, as well as higher contributions from its Asian operations in Thailand, China, Brunei, Middle East and Russia. Revenue jumped 19.0% q-o-q and 35.2% y-o-y while net profit climbed 19.9% q-o-q and 16.2% y-o-y. We understand that the commencement of operations at its Langsat Terminal (One) – Phase 3 in September 2011 and Langsat Terminal (Two) in January this year also contributed to the group’s better FY12 results.
Positive outlook. We continue to believe that the company would be able to execute and deliver its Pengerang CTF and Balai marginal oilfield projects owing to its solid management team. As the company conducts extensive studies before kicking off preliminary works and also possesses a good balance of recurring income and higher risk projects, Dialog has an appealing risk-return profile.
Maintain BUY. We are revising higher our fair value for Dialog from RM2.99 to RM3.16 based on our newly fine tuned sum-of-parts valuation, which values the stock based on its projected FY13 earnings. We are also taking this opportunity to introduce our FY14 estimates. All in, we continue to like the company as it is one of the most defensive O&G stocks in its sector, and one that possesses a sound business model. Dialog is our favourite O&G stock due to the strong cash flow its business model generates.
Source: OSK

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