Dialog's earnings stay steady amid strong storage demand
Kenanga Research said the completion of legacy engineering, procurement, construction and commissioning (EPCC) contracts, which had been affected by cost escalations, should pave the way for at least a breakeven performance in the coming quarters.
"For now, we believe the market's expectations are sufficiently conservative, and there remains upside potential in its medium-term earnings outlook.
"That aside, the anticipated upturn in plant maintenance and turnaround activities in downstream Malaysia from financial year 2026 (FY26) could benefit its core plant maintenance segment," it added.
Kenanga Research said Dialog's recent joint venture, which includes a US$330 million terminal usage agreement tied to the Pengerang Biorefinery project, was a positive surprise, as no additional capacity expansion beyond previously announced plans had been factored in.
However, it said the internal rate of return (IRR) is expected to be lower at 9.5 per cent, compared to 11–13 per cent for earlier projects.
"This could partly be due to a higher capex-to-capacity ratio of RM5,217 per cubic metre, versus RM4,846 per cubic metre for Pengerang Terminals 2, which has a capacity of 1.3 million cubic metres," it added.
Based on a weighted average cost of capital of 6.3 per cent, Kenanga Research estimates a discounted cash flow valuation accretion of RM0.02 per share, while the annual earnings contribution is projected at RM16 million, or four per cent of its FY25 forecast.
Notably, it said the project is environmental, social and governance-aligned, serving as a storage hub for sustainable aviation fuel, hydrogenated vegetable oil and bionaphtha.
Kenanga Research has maintained an "Outperform" call on Dialog, with a target price of RM1.96.
The firm continues to favour Dialog due to the ongoing margin recovery in its plant maintenance, EPCC and specialist product businesses.
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