HLIB Research expects Dialog’s plant maintenance segment to have higher contribution in the second half of 2025.
PETALING JAYA: Dialog Group Bhd
’s headline numbers could be boosted by writebacks after making provisions for its engineering, procurement, construction and commissioning (EPCC) segment.
“Post meeting with management, we gathered that the EPCC provisions made in its second quarter ended Dec 31, 2024 (2Q25) were highly prudent and there are chances of it not being fully utilised,” said Hong Leong Investment Bank (HLIB) Research.
Dialog posted a net loss of RM129.49mil marking its first quarterly loss in 25 years.
This is a sharp contrast to the net profit of RM148.29mil a year ago mainly due to one-off impairment of investments amounting to RM134.72mil and project cost overruns in its EPCC segment
“We are reasonably confident that the full impairment on the recycled polyethylene terephthalate pellets (rPET) joint venture (RM67mil) could be partially reversed as and when Dialog successfully disposes of its 51% stake.”
Dialog said in its 2Q25 results announcement that it has fully impaired its investment in a joint venture company involved in producing rPET due to the delayed commitment by brand owners to increase their recycled content, resulting in persistently soft demand for food-grade rPET.
The company has also decided to discontinue the downstream specialty chemical plant producing malic acid in Kuantan, Pahang, a venture it initiated in 2023, writing off RM90.7mil for the capital expenditure incurred.
HLIB Research noted that lumpy EPCC provisions of RM60mil made in 2Q25 included unforeseen costs relating to equipment and materials required to commission the two large EPCC jobs on hand (Melamine plant in Gurun, Kedah and gas compressor station in Kluang, Johor due for handover somewhere mid-2025).
“All projected losses have been fully accounted for and we expect its downstream EPCC to return to black in the coming quarters.
“Management reiterated that its EPCC division will now focus internally, mainly for construction of new tank terminals at its facilities in Tanjung Langsat and Pengerang, Johor, as well as development works for its upstream projects Baram Junior Cluster and Raja Cluster Small Field Asset Production Sharing Contracts,” HLIB Research said.
It also expects Dialog’s plant maintenance segment to have higher contribution in the second half of 2025 (2H25).
The research house pointed out that its plant maintenance segment has returned to the black since the start of financial year 2025 following its estimates of a 20% to 30% upward adjustment in unit rates from the renewed Master Service Agreement with Petroliam Nasional Bhd (PETRONAS).
“We anticipate its plant maintenance contribution to expand in 2H25 as it shall benefit from higher turnaround jobs being performed during this period, in line with the recently released PETRONAS Activity Outlook 2025 to 2027,” it added.
HLIB Research estimated that the plant maintenance segment represents 10% to 15% of the company’s revenue.
The research house has maintained its “buy” call on the counter with a target price of RM2.91 as it believes the worst is over for the company post a kitchen sinking exercise.
“We like Dialog for its recurring income business model and its unique position in riding the future expansion of Pengerang via development of tank terminals.
“We look forward to the group securing new long-term dedicated storage tank terminal contracts for its Pengerang Deepwater Terminals Phase 3 with approximately 500 acres available for future development.”
