Petroleum storage buoys Dialog’s outlook

PETALING JAYA: Value is starting to emerge from the share price of integrated oil and gas services provider Dialog Group Bhd, whose share price has fallen by 70% from the mid-2020 peak of RM3.99.

BIMB Research has initiated coverage on the stock with a “buy” recommendation and a discounted cash flow-derived target price of RM1.94 based on the company’s defensive earnings derived from its petroleum storage business together with plans to expand its upstream segment.

“We think it is timely for investors to revisit the stock,” the research house said.

The shares trade at 13 times price-earnings (PE) for the company’s financial year ending June 30, 2026 (FY26), with a close to 70% drawdown and potentially offer a 3% dividend yield. The target price implies 20 times FY26 PE.

“Dialog’s stock price has nose-dived partially due to its first quarterly losses recorded in the second quarter of FY25.

“While lack of earnings growth in the past financial years could justify the de-rating of the stock, we think the heavy selling is overdone,” the research house said.

It added that Dialog’s recent financial performance had been weighed down by cost overruns for low-margin downstream contracts.

“The company is mitigating this risk by being selective about the projects that it bids for, focusing primarily on in-house projects.

“However, this will lead to lower revenue from the downstream segment,” the research house said.

It projected FY25 earnings to decline 34% year-on-year before recovering in FY26, underpinned by the petroleum storage business and the exit from its petrochemical ventures.

“We favour Dialog owing to its relatively stable earnings that are mainly generated from its petroleum storage business.

“The business contributes around 60% to its bottom line, while the remaining is contributed almost equally by upstream and downstream segments.

“As a midstream player, Dialog is insulated against the volatility of oil prices,” the research house said.