This prompted a selloff in the shares which fell as much as 36 sen or 20% to RM1.45 in morning trading, its biggest decline in 17 years. It however pared its losses to 24 sen or a 13.3% drop to close at RM1.57, giving it a market capitalisation of RM8.86 billion.
Dialog announced yesterday a net loss of RM129.49 million in its second quarter ended Dec 31, 2024 (Q2 FY2025) from a net profit of RM148.29 million a year ago.
In its bourse filing, it attributed the loss mainly to one-off impairment of investments amounting to RM134.72 million and project cost overruns in its engineering, procurement, construction and commissioning (EPCC) segment.
The group has decided to close its downstream specialty chemical plant producing malic acid in Kuantan, Pahang, a venture it started in 2023. As a result, it wrote off RM90.7 million for the capital expenditure incurred.
It has also fully impaired RM44 million in investment in a joint venture company involved in producing food-grade recycled polyethylene terephthalate pellets (rPET).
The company has been weighed down by problems at its construction segment, hobbled by cost escalation of legacy contracts. Year-to-date, its share price has fallen 16%.
The latest setback inevitably prompted several research houses to downgrade their recommendations on Dialog, whose first half core earnings accounted for just 23% of the consensus full-year estimates.
MIDF Research cut its rating to “neutral”, stating the outlook for the downstream segment would remain challenging in the near-term.
“The current uncertainties in the oil market, contributed by the promised increase in US oil production, the proposed US trade tariffs and ongoing geopolitical tensions, remain a downside for the supply-demand balance of conventional fuel and petrochemical products,” it said in a note.
‘Kitchen sinking exercise’
Despite the sharp drop today, some analysts remain positive on Dialog’s outlook despite the unexpected loss.
Hong Leong Investment Bank, which kept its “buy” call with a lower target price of RM2.91, said the worst is over for Dialog, with earnings set to normalise in the coming quarters.
It characterised the Q2 loss as a “kitchen sinking exercise” by the company to exit and write-off its investments in loss-making projects.
“We do not expect the massive cost overruns to recur in the coming quarters, as Dialog had booked in all the necessary expenses required in this quarter to complete the legacy projects,” it said in a note.
CIMB Securities said its earnings could more than double in the second half of FY2025 to RM316.8 million ringgit, driven by stronger downstream earnings.
Dialog also stands to benefit from an expected surge in plant turnaround activity over 2025 to 2027, it said, citing state-owned oil company Petronas’ activity outlook.
According to Bloomberg, the consensus target price for the stock is RM2.46, a potential gain of 57% from its current price over the next 12 months.
Dialog was co-founded by its executive chairman and majority shareholder Ngau Boon Keat in 1984.
A mechanical engineer by training, Ngau,76, began his career in 1972 with Mobil Singapore and then worked with Petronas from 1975 to 1980. Forbes puts his net worth at US$600 million (RM2.67 billion) as of April 15, 2024.