PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
13 May 2010
MARKET DATELINE

Dialog Group Share Price

Fair Value
:
:
RM1.07
RM1.29
Stronger 4Q Ahead Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (DIALOG; Code: 7277) Bloomberg: DLG MK

Net EPS Net
FYE Turnover Profit EPS# Growth PER C.EPS* P/NTA P/CF Gearing ROE GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%) (%)
2009 1,104.3 92.2 6.6 22.0 16.2 - 3.5 13.8 Net cash 22.7 3.4
2010f 1,114.5 126.0 6.4 (3.4) 16.8 6.0 4.2 14.6 Net cash 26.8 3.3
2011f 1,314.8 183.2 9.3 45.4 11.6 7.0 3.5 10.4 Net cash 32.6 4.8
2012f 1,490.6 223.0 11.3 21.7 9.5 8.0 2.9 8.7 Net cash 32.8 5.8
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

♦ 3QFY06/09 results largely in line. Dialog reported 3QFY06/10 revenue RHBRI Vs. Consensus
Above
of RM282.8m (+3% qoq, +5% yoy) and net profit of RM31.8m (+11%
In Line
qoq, +53% yoy). Although 9M net profit only accounted for 70% and
Below
74% of our full-year forecast and market consensus, we consider the
results to be largely in line as we expect stronger contribution from Issued Capital (m shares) 1,979.6
higher-margin plant maintenance and specialist products and services as Market Cap(RMm) 2,118.2
well as higher contribution from TLP1 over the remaining quarters. Daily Trading Vol (m shs) 1.3
Furthermore, EBITDA margin increased 1.1%-pts qoq to 12.5% given 52wk Price Range (RM) 0.75-1.49
Major Shareholders: (%)
higher contribution from specialist product and services as well as plant
maintenance services. Ngau Boon Keat 26.1
EPF 16.5
♦ Upside to TLP’s earnings contribution. We highlight that the company Lembaga Tabung Haji 5.7
is in advanced stages of discussion with customers for an additional
storage capacity, which would either be an expansion of T1 (from the FYE Jun FY10 FY11 FY12
EPS chg (%) - -
current 400k m3 strorage capacity) or development of T2. We view this -
Var to Cons (%) 6.1 32.2 40.8
positively as this would further enhance its recurrent earnings base (i.e.
around 70% of its FY09 revenue). We highlight that our back-of-envelope PE Band Chart
calculations based on the additional 200k m3 storage capacity, suggest
PER = 42x
our FY11-12 EPS forecasts could be enhanced by 11.3% and 11.1% PER = 32x
respectively. PER = 22x
PER = 12x

♦ Risk – sensitivity to crude oil price. Earnings growth is primarily

derived from expansion of recurrent downstream specialist services e.g.
catalyst handling and tankage. Any downturn in crude oil prices will likely
drive margin down as new jobs are priced more competitively, while any
drop in costs could lag.
Relative Performance To FBM KLCI

♦ Forecasts. No change to our forecasts for now. Nevertheless, we

highlight that potential upside to FY11-12 earnings would be driven by Dialog Group
stronger E&C orderbook arising from EPCC jobs for both TLP T2 and
Pengerang Terminal as well as news flow on large and long-term catalyst FBM KLCI
handling projects with American and Europe-based clients.

♦ Investment case. We continue to like the company’s conservative and

asset-light strategy driven by strong management. Hence, given the
potential 20% upside to our fair value, we reiterate our Outperform call
on the stock with unchanged SOP fair value of RM1.29/share based on Wong Chin Wai
16x FY06/11 PER for the core operating business, i.e. at a premium to the (603) 92802158
sector target PER of 13x. wong.chin.wai@rhb.com.my

Please read important disclosures at the end of this report. Yap Huey Chiang
(603) 92802171
yap.huey.chiang@rhb.com.my

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 13 May 2010

Table 2. Dialog Quarterly Results

QoQ YoY YoY
FYE Jun (RMm) 3Q09 2Q10 3Q10 9M09 9M10 Comments
(%) (%) (%)
269.7 275.6 282.8 3 5 746.6 867.2 16
Turnover Up qoq and yoy due mainly to higher
contribution from EPCC and specialist
products and services as well as plant
maintenance services.

26.3 31.5 35.3 12 34 69.2 97.2 40

EBITDA
9.8 11.4 12.5 9.3 11.2
Margin (%) Higher yoy mainly due to higher
contribution from higher-margin plant
maintenance services and specialist
product and services. Improvement
on qoq basis, implied that higher staff
costs incurred for new businesses
have stabilised

(4.0) (4.6) (4.4) (3) 11 (11.7) (12.9) 10

Depreciation
22.4 27.0 30.8 14 38 57.5 84.3 47
EBIT
1.6 1.3 1.7 34 8 3.7 4.6 24
Net inc/(exp)
6.4 8.5 8.6 0 33 20.8 23.3 12
Associates Higher yoy due to contribution from
TLP1 (with the commencement of
130k m3 storage capacity in Aug-09)

30.4 36.8 41.1 12 35 82.0 112.2 37

Pre-tax profit Higher qoq and yoy due to higher
contribution from EPCC and plant
maintenance services as well as
higher associate profits

(5.3) (6.5) (7.3) 13 38 (13.6) (20.1) 48

Taxation
17.5 17.7 17.8 16.6 18.0
Eff. tax rate (%)
(4.2) (1.7) (1.9) 17 (54) (6.7) (4.7) (30)
Minorities
20.8 28.6 31.8 11 53 61.7 87.4 42
Net profit
- -
1.6 2.0 2.3 11 53 4.4 6.2 42
EPS (sen)
Source: Company, RHBRI

Table 3. Fair Value Calculation

Fair value (RMm) Valuation basis

Core operating businesses 1,855.3 16x FY06/11 PER, premium to the target sector benchmark of 13x
Add: Kertih NPV (30%) 362.9 DCF based on WACC of 14.5%
Add: TLP CTF NPV DCF based on WACC of 15% including additional risk premium for start-
330.1 up risks
Add: FY09 net debt 0.3
Total (RMm) 2,548.6
Fair value (RM/share) 1.29
Source: RHBRI

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 Table 4. Earnings Forecasts Table 5. Forecast Assumptions
FYE Jun (RMm) FY09 FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F
E&C 441.9 225.0 100.0 75.0 EBITDA margins (%)
Specialist services 369.2 422.3 495.3 581.3 E&C 6.0 6.0 6.0
Plant maintenance svs 241.5 289.8 362.2 434.6 Specialist services 10.3 10.3 10.3
Catalyst handling 47.7 107.3 144.5 187.0 Plant maintenance services 15.7 15.7 15.7
TLP CTF - 70.2 212.7 212.7 Catalyst handling 20.0 25.0 30.0
Turnover 1,104.3 1,114.5 1,314.8 1,490.6 Overall 15.8 21.9 23.4

EBITDA 110.2 176.6 288.3 348.2 Tanjung Langsat Port CTF

Margin (%) 10.0 15.8 21.9 23.4 - T1 capacity ('000 m3) 132 400 400
Depreciation (16.1) (48.5) (48.9) (49.3) - Rental/m3 (RM) 531.7 531.7 531.7
Interest inc./exp. (1.1) (3.3) 1.5 8.5
- Kertih (30%) 30.5 34.2 37.6 36.7 Source: Company data, RHBRI estimates
Pre-tax profit 123.5 159.0 278.5 344.2
Taxation (22.2) (25.0) (48.2) (61.5)
Effective tax rate (%) 19.0 20.0 20.0 20.0
Minorities (9.2) (8.1) (47.1) (59.7)
Net profit 92.2 126.0 183.2 223.0
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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