PETALING JAYA: Dialog Group Bhd’s earnings recovery remains intact despite its net profit for the financial year ended June 30, 2023 (FY23) slightly missing expectations.

Analysts are optimistic that the integrated technical service provider for the oil, gas and petrochemical industry would see continued improvement in earnings recovery in FY24, driven by both the company’s upstream and downstream divisions.

Dialog’s net profit rose to RM510.5mil in FY23 from RM508mil in FY22, as revenue grew to RM3bil from RM2.3bil. Correspondingly, its earnings per share rose to 9.05 sen from nine sen.

The results were slightly below analysts’ forecasts due to margin compression at the downstream segment and lower contribution from the group’s terminals in Pengerang, Johor.

According to CGS-CIMB Research, the outlook for Dialog’s upstream division is positive as oil prices are recovering from production cuts from major producers, namely, Saudi Arabia, Russia and other members that form the larger group of the Organisation of Petroleum Exporting Countries and its allies (Opec+).

In its report yesterday, the brokerage noted Dialog’s 50%-owned unit, Pan Orient Energy (Siam) Ltd, also continued to see stable production, and Dialog was already seeing higher production levels in Malaysia from the drilling work done so far.

“Dialog also believes that the legacy loss-making engineering, procurement, construction, and commissioning (EPCC) work should be completed by end-December 2023 or end-March 2024, after which, Dialog will no longer incur these losses, as new EPCC contracts will be priced upwards,” CGS-CIMB Research said.

“Also, the current umbrella plant maintenance contract with Petroliam Nasional Bhd will end in June 2024, and Dialog will negotiate higher manpower rates for the new contract,” it added.

However, the brokerage said, there were still downside risks that included the potential for EPCC losses dragging on for longer, and for independent tank storage rates and utilisation to weaken if aggressive Opec+ production cuts extended into the fourth quarter of 2023.

CGS-CIMB Research maintained “add” on Dialog, with a lower target price of RM2.70, as compared to RM2.73 previously, due to lower earnings per share forecasts for the company.

Meanwhile, Kenanga Research kept its “outperform” call on Dialog, with an unchanged target price of RM3.10.

“We expect Dialog’s midstream business to continue to do well on the back of robust rates and utilisation.

“This is partly boosted by new capacity uptake at Pengerang, emanating from storage of refined oil products bound for Australasia,” the brokerage explained.

“We also expect downstream margins to gradually inch up following the completion of legacy contracts by end-FY24,” it added.

Kenanga Research noted that Dialog’s ambitious expansion plans at Pengerang and Tanjung Langsat remain on track.

It said there could be potential interest from new investors at Pengerang that included Singapore-based ChemOne and China’s Rongsheng Petrochemical.