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Maybank IB raises FY2025-26 earnings forecasts for  DIALOG 7277 DIALOG GROUP BERHAD

KUALA LUMPUR (June 3): Maybank Investment Bank (Maybank IB) has raised its earnings forecasts by 20% for Dialog Group Bhd’s (KL:DIALOG) financial year 2025 (FY2025) and by 19% for FY2026, to reflect the renewal of its master service agreement by Petroliam Nasional Bhd (Petronas) and a turnaround in its downstream segment.

In a note on June 2, 2024, Maybank IB said, “With Dialog’s downstream ops to finally be profitable starting FY2025, improvement in joint venture and associate contribution as the past two quarters were impacted by recognition of one-off non-cash expenses; we project a heightened quarterly core net profit base of RM180 million to RM200 million in FY2025 (3QFY2024: RM162 million).”

“Our revised forecasts assume the lower end of the range, to be conservative. We highlight that consensus earnings estimates are lagging behind our revised FY2025E forecast by 15%,” it added. Maybank IB upgraded its target price for Dialog to RM3.13 (from RM2.67), with an unchanged "buy" call.

The research house said Dialog secured the renewal for its master service agreement (3+2 years) from Petronas (under its plant maintenance segment) beginning July 2024 at “significantly higher rates”.

Maybank IB also noted that Dialog is trying to scale its downstream segment’s ops back towards pre-Covid 19 profit margins.

“The existing contract was signed in July 2019 for five years. From our findings, its plant maintenance ops were generating profits of over RM100 million per annum in FY2019/2020 but have declined to only marginal breakeven levels in FY2023 due to cost hikes over the years.

“We believe that this contract renewal will be key to Dialog’s earnings growth in FY2025,” it added.

Meanwhile, the research firm also believes that Dialog’s engineering, procurement, construction and commissioning (EPCC) segment will turn around in FY2025 after it posted losses in its latest quarter (3QFY2024).

It also noted that the EPCC segment has been making losses since FY2023 due to cost overruns mainly due to cost hikes over the years.

“As all of the loss-making legacy EPCC contracts are set to fully lapse in June 2024, we think that this segment will finally be profitable beginning 1QFY2025E after being in the red in FY2023-24 as newer jobs are also signed at improved rates.

“We expect Dialog’s group margins to continue improving in the upcoming quarters,” added Maybank IB.

Dialog shares last closed half a sen or 0.21% lower at RM2.39, valuing the company at RM13.5 billion.


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