PETALING JAYA: After clocking in an unexpectedly poor first-half, Dialog Group Bhd
’s earnings are forecast to more than double in the second half of financial year 2025 (2H25) due to improved downstream contribution.
On a full-year basis, however, CIMB Securities Research has slashed its projections for the financial year of 2025 (FY25) to FY27.
This was on the back of project cost overruns, lower joint-venture (JV) contributions and reduced operating margin assumptions for construction and maintenance activities.
Following the earnings revision, the target price was lowered from RM3 to RM2.67 per share, even though the “buy” call remains unchanged.
In a note yesterday, CIMB Securities Research projected Dialog’s core net profit to grow to RM316.8mil in 2H25, as compared to RM154.6mil in 1H25.
The oil and gas services player’s core net profit in 1H25 had plummeted by 46.4% year-on-year (y-o-y), falling short of expectations.
CIMB Securities Research said it observed a significant drop in the performance of Dialog’s Malaysian operations in the second quarter of FY25 (2Q25).
The decline appears largely driven by the downstream segment, particularly engineering and construction, it said.
“Our channel checks indicate that two of Dialog’s three legacy projects are in the commissioning and pre-commissioning stages, suggesting that additional costs are likely to be recognised.
“Our back-of-the-envelope calculation suggests that the cost overruns are likely to be RM50mil to RM70mil.
“Our assumption is premised on the steady performance in the mid-stream segment, supported by high utilisation rates exceeding 90% for its independent terminals and stable spot rates in the S$6 to S$6.5 per cubic m range, and steady upstream earnings driven by stable oil prices and steady production.
“In addition, JV contributions declined by 89.5% y-o-y, primarily owing to losses from the recycled polyethylene terephthalate pellets business amounting to approximately RM40mil,” stated the research house.
In the second quarter ended Dec 31, 2024, cost overruns involving the engineering, procurement, construction and commissioning (EPCC) projects – apart from the impairment of investments in petrochemical and renewable projects – caused Dialog to suffer its first quarterly loss since its debut on the Main Market some 25 years ago.
Nonetheless, Dialog said it is committed to completing and delivering these EPCC projects.
“The cost overruns and project losses have been addressed and accounted for as the projects approach completion,” it added.
Dialog was first listed on the Second Board of the Kuala Lumpur Stock Exchange in May 1996, and was transferred to the Main Board (now known as Main Market) in March 2000.
CIMB Securities Research has cut its FY25 earnings estimate by 25.1% to reflect weaker downstream earnings and lower JV contributions.
As for FY26 and FY27 earnings projections, they have been trimmed by 5.4% and 6.1%, respectively, to reflect lower operating margin assumptions for construction and maintenance activities.
However, it is not all doom and gloom for Dialog.
Referring to the PETRONAS Activity Outlook 2025-2027 report, CIMB Securities Research said there will be “massive” plant turnaround jobs in the pipeline.
“As a key player in the onshore maintenance space with experience at major hubs like Kertih, Melaka, and Gebeng, Dialog is well-positioned to benefit from these turnaround activities, particularly in Kertih (2025) and Melaka (2026).
“We maintain our ‘buy’ call on Dialog owing to stable storage terminal income, an expected rebound in EPCC and maintenance activity from 2H25, an attractive 16.6 times price-to-earnings multiple, and strong growth prospects in Pengerang,” it noted.
The Dialog stock closed at RM1.56 yesterday.
