Dialog Group - Broadly In-line for 2QFY13

Period    2Q13/1HFY13

Actual vs. Expectations    The 2Q13 net profit of RM47.5m brought the 1HFY13 net profit to RM94.3m. 

 This was broadly within expectations, accounting for 44% of ours (RM212.8m) and 43% of the consensus (RM221.4m) full-year net profit estimates.

 We consider the reported 1HFY13 earnings to be within expectations as Dialog typically performs stronger in the 2H of the year.

Dividends   No dividend was declared in 2Q13 as expected.

Key Results Highlights    QoQ,  despite a 20.7% increase in revenue largely due to the increasing EPCC activities at the Pengerang Independent Deepwater Terminal project, net income was flat with an increase of just 0.3% due to the abovementioned cost overrun incurred at the Singaporean project. We understand from management that it is fortunately a one-off event and unlikely to affect future earnings.   

 YoY, the 1Q13 net profit rose 14.6% from that of RM41.5m in 2Q12 while the revenue jumped 17% to RM417.0m largely due to the Pengerang CTF EPCC works, new earnings from Jubail Supply Base and improved sales from the Specialist Products and Services division.  Again, if not for the loss in the current quarter, we believe the YoY jump would be higher.

Outlook   Despite the softer 1HFY13 reported earnings, we are confident that Dialog will be able to meet our fullyear FY13 estimate as well as that of the market consensus as Phase 1 of Pengerang CTF will progress more aggressively towards the tail-end of FY13. As such, we are maintaining our earnings forecasts for the time-being.

 FY13 earnings are expected to reach a new high due to the full-year earnings impact of LT2, the EPCC jobs for Pengerang CTF and the fabrication job for Balai Marginal Fields. These in-house EPCC/fabrication jobs should keep Dialog busy until 2014.

 Both the Balai RSC and Bayan OSC will turn Dialog from a service provider to a developer and producerof oil/gas field, which will provide it with sustainable recurring incomes in the future.

Change to Forecasts    No changes to our FY13E-FY14E estimates.  

Rating    MAINTAIN OUTPERFORM

Valuation    Maintaining our basic SOP-based price target of RM2.79/share.

Risks   Delays in its in-house EPCC jobs, which will impact its future recurring incomes negatively.    

Source: Kenanga