DIALOG: Earnings Performance Aligns with Expectations Amidst Strategic Cost Management and Expansion Plans

An integrated technical service provider has reported first-quarter financial results that were largely in line with market expectations, despite a year-on-year decline in core net profit. The company demonstrated resilience through robust downstream segment recovery driven by cost optimisation and strategic project completions, leading to a positive outlook from TA SECURITIES.

Performance Review

For the first quarter of fiscal year 2026, the company recorded a core net profit of RM138.0 million. This figure represents a 13.9% decrease year-on-year, primarily attributed to the absence of a significant foreign exchange gain in its midstream joint ventures and softer performance in the upstream segment due to lower realised oil prices. Despite the YoY dip, the results met both the investment bank’s and consensus forecasts, accounting for 25.6% of full-year estimates. On a quarter-on-quarter basis, improved downstream earnings successfully offset the reversal of forex gains, stabilising overall group earnings. Notably, the EBITDA margin expanded significantly to 30.7%, up from 20.5% in the prior year, underscoring effective cost management and recovery in the downstream sector.

Operational Strengths and Challenges

The downstream division continued its strong rebound, now contributing approximately 25% of the group’s earnings, a substantial increase from 10-15% in the fourth quarter of fiscal year 2025. This improvement was largely fuelled by dedicated cost optimisation initiatives and the successful completion of several key projects, leading to a 27.1% quarter-on-quarter surge in domestic operations. Meanwhile, the midstream segment maintained its steady performance, with utilisation rates consistently exceeding 90% and lease rates remaining stable at SGD6.0-6.5 per cubic meter per month for its independent terminals.

Future Growth and Outlook

The company is poised for future growth through strategic expansions and potential new contracts. A significant development is the securing of a long-term storage agreement (LTSA) with BP Singapore, which will add 614,000 cubic meters of storage capacity. This expansion, expected to be completed by mid-2028 with an estimated capital expenditure exceeding RM1 billion, is anticipated to yield a high single-digit internal rate of return, providing strong long-term earnings visibility and mitigating risks associated with other delayed projects in the Pengerang Deepwater Terminals. Further midstream reinforcement is expected from Phase 2 at Dialog Terminals Langsat 3, adding 150,000 cubic meters of capacity by September 2026. Additionally, the downstream segment could see further upside from a potential Engineering, Procurement, Construction, and Commissioning (EPCC) contract for the 272,000 cubic meter Pengerang Biorefinery development, anticipated from July 2025.

Investment Recommendation

In light of these factors, TA SECURITIES has issued a BUY recommendation for the stock, with a target price of RM0.25, representing a 25.0% upside from the last traded price of RM0.20. The revised target price reflects the robust downstream recovery and the incremental valuation from new terminal capacity.