KUALA LUMPUR (Feb 14): Shares of Dialog Group Bhd (KL:DIALOG) fell sharply within the first minutes of trading on Friday to their lowest in nearly eight years, after the oil-and-gas services firm reported a weaker than expected quarter.

Dialog Group fell as much as 35 sen or 19% to RM1.46, its lowest since March 2017. The stock was trading at RM1.56 at 9.05am, giving the company a market capitalisation of RM8.8 billion. Trading volume totalled 14.76 million shares so far.

Analysts scrambled to slash forecasts and at least three downgraded their recommendations for the stock, noting that core earnings for Dialog’s first six months accounted for just 23% of the consensus’ full-year estimates.

Dialog suffered an unexpected loss in the quarter ended December 2024, partly due to troubles at its downstream segment. For MIDF Amanah Investment Bank, which cut its rating for Dialog to “neutral”, the outlook for the segment would remain challenging in the near term.

“The current uncertainties in the oil market, contributed by the promised increase in US oil production, the proposed US trade tariffs and ongoing geopolitical tensions, remain a downside for the supply-demand balance of conventional fuel and petrochemical products,” the house said.

Shares of Dialog have been under pressure amid troubles at its construction segment, which has been plagued by cost escalation of legacy contracts. Friday’s decline brings the year-to-date loss to over 20%.

There are now eight “buy” calls and seven “hold” calls out of 15 research houses covering Dialog. The consensus target price is RM2.46, according to Bloomberg, implying a potential gain of 67% from its last price over the next 12 months.

The loss in the quarter is a “kitchen sinking exercise” by Dialog to exit and write-off its investments in loss-making projects, said Hong Leong Investment Bank, as it kept its “buy” call on Dialog, with a lower target price of RM2.91.

“We do not expect the massive cost overruns to recur in the coming quarters, as Dialog had booked in all the necessary expenses required in this quarter to complete the legacy projects,” the house noted. “The worst is over for Dialog, with earnings set to normalise in the coming quarters.”

On Thursday (Feb 13), Dialog reported its first ever loss at RM129.5 million for the quarter ended Dec 31, 2024, due poor showings of its downstream specialty chemical plant in Kuantan, amid oversupply of malic acid in the market.

The project is discontinued, requiring the capital expenditure incurred to be written off. Further, the company also suffered project cost overruns at its engineering, procurement, construction and commissioning (EPCC) division.

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