Dialog last week told Bursa Malaysia it had secured two contracts totalling RM132mil from Malaysian Refining Co Sdn Bhd (MRC), a joint-venture company between Petroliam Nasional Bhd and Conoco Asia Ltd, to provide mechanical and maintenance services to its Malacca refinery.
OSK Research estimated in an update report that these contracts would boost Dialog’s current order book to RM1.5bil and contribute to its earnings for the financial year ending Dec 31, 2009.
“We believe the profit margins for these maintenance contracts are better than the margins for a typical engineering, procurement, construction and commissioning project as the latter is normally more sensitive to cost fluctuations, particularly amid the prevailing high steel raw material price environment,” OSK said. It anticipated a gross margin of 10% to 15% from the MRC contracts.
RHB Research said in a report that while the new maintenance contracts were positive for Dialog's earnings, the company remained focused on longer-term recurring income from specialist businesses of advanced catalyst handling and tank terminals.
“However, the maintenance business provides an important inroad for Dialog’s specialist services. For example, we believe the MRC project puts Dialog in a stronger position to provide advanced catalyst handling services to the refinery,” it said.
The bank-backed brokerage foresaw significant organic growth for Dialog over the next two years due to the global expansion of its advanced catalyst handling services to the US and Europe, and its Tanjong Langsat tankage development project.
“In the shorter term, Dialog’s RM1bil-plus contracts will underpin earnings growth,” RHB Research noted.
Technically, the stock is tracing a widening wedge formation. Having recently rebounded from a low of RM1.15, it is however, on the decline again.
Dialog is expected to trade in a choppy manner with current support at RM1.10 with resistance at RM1.40. A break in either direction will likely set its subsequent move.
However, with its overbought/oversold indicators in position of weakness below the neutral line, Dialog is more likely to stay under selling pressure.
OSK said the recent weakness in Dialog's share price provided a good opportunity to accumulate, hence the research house was maintaining its “buy” rating with a target price of RM2.35.
RHB Research maintained its “outperform” recommendation with a target price of RM1.93.
Source : The Star
