Blog, Stock Take

Dialog Berhad (KLSE: DIALOG)

Dialog is a leading integrated technical service provider that is diversified across the upstream, midstream and downstream sectors in the oil, gas and petrochemical industry

The company issued its 2018 annual report on 15th Oct 2018. Key summary and my take from the report

  1. Dialog is now listed in the KLCI (Kuala Lumpur Composite Index), which comprises the largest 30 companies by full market capitalisation on Bursa Malaysia’s Main Board. This is the result of the growth of Dialog’s market capitalisation from RM 11 billion in FY2017 to approximately RM 20 billion presently
  2. Revenue is 8.3% lower but profit (after tax) rise by 41.6% compare to last year
  3. Dialog KPI is to keep their gearing ratio below <0.5 and they are successful in maintaining it (i.e 0.1 in FY2018 and net cash in FY2017/2016). This is beneficial for the company especially in the rising interest rate climate
  4. Dialog committed to maintain 40% payout ratio for dividend, which they have been successful in maintaining (i.e. 40% in FY2017/2016 and 41% in FY2018)
  5. Its diversified business in oil & gas industry helps to mitigate the cyclic risks of the industry (i.e. movement of oil price due to change in supply and demand). During low oil price, its terminal operation provides good income because of higher storage tank utilisation by its client and plant maintenance activity increases with more refineries and chemical plants ramping up production to benefit from low feedstock price

    Table 1: Dialog Business
  6. Dialog’s top leadership team has their skin in the game. Tan Sri Dr Ngau Boon Keat, who is the executive chairman and co-founder is also a major shareholder of Dialog (i.e. 18.86% deemed interest)
  7. Dialog recorded ROI of 15% in FY2018 vs 13% in FY2017/16
  8. Refer to Graph 1 below. Its current price at Rm 3.32 (12 Nov 18) is trading at 36.5 PE ratio, which is higher than its previous years. It is also trading at a premium over Malaysia’s FTSE composite index average PE of 18.5 in Oct 2018.

    Graph 1: PE Ratio
  9. Is the premium justified?
    • Dialog is driven to derive sustainable recuring income from its terminals (i.e. Tangjung Langsat and Pengerang terminals) operation and expansion. Both which they have stakes in them. Pengerang Deepwater Terminal (PDT) Phase 2 is scheduled to be completed in 2019, which will further increase Dialog’s footprint in terminal operation. MOU is signed with Johor state government for Dialog to develop PDT Phase 3, which is worth about RM2.5 billion
    • Dialog has a strong local branding and a monopology in the growth of Pengerang Deepwatar Terminal. This is a reassuring business to the company and if it continues holding on to this, I believe the premium is justified.
    • What is the risk? Continuation of low oil price may impact Petronas CAPEX spending, which could reduce or at worst, halt the expansion of Pengerang Deepwater Terminal. Dialog’s revenue or profit will be affected significantly in this case. On another note, Dialog’s safety performance deteriorated in FY2018. O&G majors such as Petronas monitor their EPCs (in our case, Dialog) safety performance because safety incidents in the plant will impact their reputation and production. Continuation of poor safety performance will have an impact to the amount of contracts awarded to Dialog by oil majors such as Petronas.

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Disclosure: I own stocks in Dialog Berhad when this article was written. Any information, commentary, recommendations or statements of opinion provided here are for general information purposes only.

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