KUALA LUMPUR: Dialog Group will continue to benefit from Pengerang's development due to its exposure in tank terminals, engineering, procurement, construction and commissioning (EPCC), and maintenance services.
Hong Leong Investment Bank Bhd (HLIB Research) noted that in addition to Dialog's Terminals Langsat 1 and 2 with a total capacity of 650,000 cubic metres, Langsat 3 commenced full operations for its 120,000 cubic metre storage facility in January 2020.
The 430,000 cubic metre storage capacity under Phase 3A of Pengerang Deepwater Terminals (PDT) was commissioned in February 2021.
"With the ease of international travel restrictions in the financial year 2023 (FY23), we see Dialog as a beneficiary as PDT will be able to welcome foreign clients and investors, potentially boosting Dialog's downstream EPCC and midstream take-or-pay tank terminals business.
"Also, Dialog is taking various measures, including negotiating with clients for reimbursement and compensation for the project overruns caused by inflationary pressures and external macroeconomic factors," it said in a note.
The research firm said Dialog's first quarter (Q1) net profit of RM132.7 million came in within expectations at 24 per cent and 23 per cent of the firm's and consensus full-year estimates.
The company's revenue was up by 41 per cent, primarily due to the contribution from its newly commissioned Dialog Terminals Pengerang 5 (DTP 5), which is part of its Phase 3A PDT project.
"We note that DTP 5 has a storage capacity of 430,000 cubic metres and is dedicated to BP Singapore Pte Ltd.
"However, we note that core profit was only up 6 per cent year-on-year, and we believe that this was due to the margin squeeze from its downstream EPCC business due to higher material prices and labour costs, which inevitably resulted in cost overruns and project losses in its downstream segment," it added.
The research firm maintained a 'Buy' rating on the stock with a target price of RM3.04.