KUALA LUMPUR (Feb 10): Hong Leong Investment Bank (HLIB) Research has slashed its earnings forecasts for Dialog Group Bhd and cut its sum-of-parts-derived target price to RM3.45 from RM4.15, as it believes that the presence of strong engineering, procurement, construction and commissioning (EPCC) contributions is needed to provide stronger earnings.

In a note today, HLIB’s Low Jin Wu said Dialog reported 2QFY21 core net profit of RM119.6 million — 8% and 22% lower than the core net profit in the immediate preceding quarter and previous year respectively — which brought its performance for the first half of the year ending June 30, 2021 (1HFY21) below expectations.

"[This came in below our/consensus' expectations, at 43%/40% of full-year estimates due to lower-than-expected contributions from its joint venture and associates (63% lower quarter-on-quarter, 51% lower year-on-year) and EPCC income.

“We cut FY21-23F earnings by 9.8%/6.0%/9.9% respectively to account for lower-than-expected EPCC income,” he added.

According to Low, while Dialog’s recurring income stream remains strong, its EPCC revenue is expected to decline as phase 3Q of Pangerang CTF Sdn Bhd (PCTF), SPV 5 and 6 and its 85,000 m3 Langsat 3 expansion near completion in 2021.

“While we are positive on Dialog’s growth in recurring income, we believe that the presence of strong EPCC contributions is needed to provide stronger earnings," he said.

Therefore, HLIB maintained its "hold" rating of Dialog.

Low expected Dialog to slow down on the expansion of its tank terminal business after the aforementioned expansion projects are completed due to the current uncertainty with regards to the Pengerang Refining Company Sdn Bhd and Pengerang Petrochemical Sdn Bhd (PRefChem) project by Petronas and Saudi Aramco.

He added: “However, the commissioning of the extra capacity from the aforementioned tank terminal expansions are expected to add towards Dialog’s recurring income.”

Overall, its year-to-date core profit declined by 14% year-on-year mainly due to lower EPCC revenue and contribution due to lower expansion works for its tank terminals.

As at 10.27am, Dialog's share price fell nine sen or 2.86% to RM3.06, giving it a market capitalisation of RM17.77 billion.