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Tuesday, August 29, 2017

Dialog: Breaking New High

Background

Dialog Group Berhad ("Dialog") is an investment holding company. Its subsidiaries are involved in the provision of engineering, procurement, construction and commission services and plant maintenance services. Dialog is also involved in the retailing of petroleum to oil, gas and petrochemical industries and marketing of specialty chemical and equipment.

Historical Financial Performance

Since its listing in 1996, Dialog's revenue has been on a steady growth path except for two periods: 2002-2006 and 2015-2016.


Graph 1: Dialog's last 19 years' P&L

Results Update

In QE30/6/2017, Dialog's net profit rose by 9.7% q-o-q or 32.9% y-o-y to RM104 million while revenue rose 6.1% q-o-q or 35.1% y-o-y to RM969 million. While revenue is still below the RM1 billion mark, Dialog has achieved a milestone as its net profit has surpassed the RM100 million!

The improved financial performance was “mainly attributable to higher contributions from the Group’s joint ventures which recorded an increase by 51.1% to RM107 million from RM70.8 million recorded in previous financial year”.

The Group’s Malaysia operation was “busy in the midstream and downstream activities with engineering, construction and fabrication works from various on-going projects such as the Pengerang Deepwater Terminal Phase 2, Jetty Topside works for Samsung in Pengerang and the construction of plasticizer plant for UPC Chemicals in Kuantan”.

The Group’s International operation also recorded a better financial performance “primarily driven by the increased downstream activities in Singapore and Saudi Arabia”.


Table: Dialog's last 8 quarters' P&L


Graph 2: Dialog's last 14 quarters' P&L

Latest Financial Position

Dialog's financial position as at 30/6/2017 is deemed satisfactory with current ratio at 1.7x while gearing ratio at 0.8x. Its cash & cash equivalent stood at RM1.425 billion- which nearly matches total borrowings of RM1.423 billion. If borrowings were netted off, gearing ratio would drop to 0.38x.

Valuation

Dialog (closed at RM2.03 yesterday) is now trading at a trailing PER of 30x (based on last 4 quarters' EPS of 6.7 sen). At this PER, Dialog is deemed fully valued. However, Dialog's earning grew by 26% last 4 quarters- which gives the stock a reasonable PEG ratio of 1.2x.

Technical Outlook

Dialog has broken above the psychological RM2.00 level. It also happens to be the upper line of a flag formation. This could mean that the stock could continue with its prior uptrend. If the breakout can gain sufficient support, the target price for this rally could be RM2.50.


Chart 1: Dialog's weekly chart as at Aug 28, 2017 (Source: ShareInvestor.com)


Chart 2: Dialog's monthly chart as at Aug 28, 2017 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and position, fair valuation for a growth stock & potential bullish technical outlook, Dialog could be a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

2 comments:

luckystock2 said...

Hi Alex ,
Can you kindly comment on HSL technical and fundamental outlook ? Thank you !

Alex Lu said...

Hi luckystock2

In QE30/6/2017, HSL's net profit dropped 15% q-o-q or 21% y-o-y to RM9.5 million while revenue was mixed- up 1% q-o-q bur down 1% y-o-y to RM106 million. The lower revenue y-o-y was due to timing of progress claims for construction works as major contract works are at their initial stages of execution. The profit margin for the works executed during the quarter was also lower.

Nevertheless HSL's bottom-line has been trending lower in the past 4 years. This is in line with lower top-line since FY2014 due to lower construction revenue. With the new projects in hands (where order book stood at RM2.5 billion in Jan this year), this should change in the next few quarters as work is carried on the projects.

Chartwise, HSL is at the critical support of RM1.40-1.45 which coincide with the horizontal line at RM1.45 & the long-term uptrend line support at RM1.40. This long-term uptrend line stretches back to 2003 but was violated in 2008. If you ignored that "violation", that uptrend line is now supporting the share price.

Based on expected improvement in earning and the underlying technical support for the share price, I would rate HSL a HOLD.

Note that MIDF has valued this stock at RM2.19 in April: http://www.midf.com.my/images/Downloads/Research/Equity/HockSengLee/HSL-Rising-Earnings-Beckons-MIDF-270417.pdf