RHB Research said the outlook for Dialog’s downstream segment is expected to improve.
PETALING JAYA: Dialog Group Bhd
’s prospects for the financial year 2025 (FY25) remain positive, despite challenging external risk factors, say analysts.
Most brokerage firms concurred that the group’s latest first-quarter (1Q25) results came in within their expectations, having posted a core net profit of RM160mil, up 16.1% year-on-year (y-o-y), though down 3.1% quarter-on-quarter (q-o-q).
Barring any unforeseen global events, MIDF Research maintained its positive outlook on Dialog’s FY25 performance.
“While the volatile oil market is expected to impact the upstream and downstream businesses, we noted that Dialog’s services remain focused on the development and rejuvenation of existing oil and gas fields, as well as in exercising caution for lump-sum engineering, procurement, construction and commissioning (EPCC) contracts amid potential downstream risks,” the research house said in a note to clients.
MIDF Research said the environment for the sector remains challenging due to the market’s response to the US President-elect Donald Trump’s impending inauguration, ongoing geopolitical conflicts in the Middle East and Eastern Europe, as well as Opec+ prolonged supply cuts.
“However, we opine that Dialog’s integrated operations across all divisions will continue to mitigate these risks, through continuous upskilling of workforce and intensive adaption of new digital technology,” the brokerage said.
In consideration of the group’s 1Q25 earnings coming in within its expectations, MIDF Research made no changes to Dialog’s earnings forecast and kept a “buy” call on the stock with a target price (TP) of RM2.72.
For RHB Research, the outlook for Dialog’s downstream segment is expected to improve, driven by new plant maintenance projects, factoring in new rates, and gradual margin improvements.
This is also supported by potential contributions from the Morimatsu Dialog fabrication plant in Pengerang, Johor, which is expected to be completed by 3Q25.
Additionally, the L53 oilfields in Thailand are also expected to maintain oil production at 2,000 barrels per day (bpd) following the completion of drilling works.
The occupancy levels and monthly storage rates for independent terminals remain strong with occupancy above 90% and storage rates exceeding S$6 to S$6.50 per cu m.
RHB Research said the Langsat Terminals Expansion 1, with a 24,000 cu m tank, will be completed by end-2024, while Phase 2 of its 150,000 cu m storage for renewable and petroleum products is scheduled for completion by September 2026.
It highlighted that the dedicated storage for renewable fuels is expected to command a premium over the current storage rates for conventional fossil fuels.
The brokerage also noted that Dialog is actively exploring new markets and engaging potential food and beverage customers for its joint-venture food-grade recycled polyethylene terephthalate pellets plant.
RHB Research maintained its “buy” call on Dialog and kept the stock’s TP at RM3.09.
It said the downside risks included weaker tank terminal rates and slower-than-expected expansion of Pengerang Phase 3.
Meanwhile, CIMB Research said it foresees a stable outlook for Dialog with gradual improvement in the group’s downstream performance.
“We have made no change to our FY25–FY27 earnings projections, as we expect earnings in the remaining quarters to remain stable,” it said in a report yesterday.
“We anticipate further improvement in its downstream earnings, particularly as the construction of the 150,000 cu m Langsat 3 expansion progresses to an advanced stage,” the research house added.
Currently, the downstream segment is buoyed by operations in Malaysia, where earnings before interest, tax, depreciation and amortisation margin has improved to 30.5%, compared with 25% in 1Q24.
This aligns with Dialog’s guidance on improving downstream profit margins from FY25, particularly in Malaysia, following the completion of all loss-making legacy EPCC projects in 4Q24.
Dialog’s master service agreement with Petroliam Nasional Bhd for plant turnaround and daily maintenance is expected to further bolster downstream earnings, thanks to revised rates.
CIMB Research kept its “buy” call on the stock with an unchanged TP of RM3.
Key re-rating catalysts included higher spot rates for independent terminals, a turnaround in earnings from its EPCC segment starting FY25 and the commencement of operations at the 24,000 cu m renewable fuel tanks at Langsat 3.
