Dialog Group’s Prospects for FY25 and Beyond

Dialog Group’s FY25 Profit to Surpass FY20 Levels, Target Price Raised to MYR3.13

Dialog Group is expected to achieve significant profit growth in FY25, potentially surpassing its FY20 levels. This positive outlook has led analysts to raise the target price for Dialog’s stock to MYR3.13 from MYR2.67. Key factors driving this optimism include the anticipated boost in revenue and profitability margins in the downstream segment.

Key Catalysts for Re-rating:

Earnings Delivery: Continued strong performance and profit realization.

New Tank Terminal Contracts: Potential new contracts in Pengerang could further enhance earnings.

Renewal of Master Service Agreement with PETRONAS

Dialog has secured a renewal for its Master Service Agreement (MSA) with PETRONAS, effective from July 2024. This agreement, which covers plant maintenance, is renewed for three years with an option for an additional two years, and it comes at significantly higher rates. The renewal is crucial for Dialog as it aims to restore its downstream segment’s profitability to pre-COVID-19 levels. Previously, this segment generated over MYR100 million annually in FY19/20, but profits have dwindled due to rising costs, leading to near break-even levels by FY23.

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EPCC Division Expected to Turn Profitable

Dialog’s Engineering, Procurement, Construction, and Commissioning (EPCC) division, which has been loss-making due to cost overruns and increased expenses, is projected to become profitable starting from 1QFY25. Losses from legacy EPCC contracts are expected to cease by June 2024, with newer contracts likely to be more lucrative. This turnaround is anticipated to improve overall group margins.

Record High Profits Forecasted for FY25

Analysts project Dialog’s core net profits to range between MYR180-200 million per quarter in FY25, compared to MYR162 million in 3QFY24. This forecast is conservative, considering only the lower end of the range. The anticipated profitability of the downstream operations and improved contributions from joint ventures and associates support this positive outlook.

Analysts’ Consensus

Current market consensus on Dialog’s earnings is 15% lower than the revised FY25 forecast by these analysts, indicating a potential for upward revisions as more data becomes available.

Dialog Group – Profit Growth

Dialog Group is poised for significant profit growth in FY25, driven by higher revenues in its downstream segment and the renewal of key contracts at improved rates. With its EPCC division expected to return to profitability and potential new contracts in Pengerang, Dialog remains a strong buy recommendation with an increased target price of MYR3.13. Source: Maybank