[RAM] RAM Ratings affirms AA2 and A1 debt ratings of DIALOG Group

RAM Ratings has affirmed the respective AA2/Stable and A1/Stable ratings of DIALOG Group Berhad’s (DIALOG or the Group) RM3 bil Senior Islamic Medium-Term Notes and RM3 bil Subordinated Perpetual Islamic Notes. The Subordinated Perpetual Islamic Notes is rated two notches below its senior sukuk, to reflect increased loss severity and the risk of non-performance relative to senior debts.

The affirmation of the ratings reflects DIALOG’s strong business profile and a robust balance sheet despite expected rising debts. Although downstream earnings fell further, the Group’s diverse earnings allowed its pre-tax profit to remain sustained by a stronger showing from its upstream and midstream segments. DIALOG remains a leader in the domestic tank terminals sector, its midstream segment having an operational capacity of 5.1 mil cubic metres with healthy growth prospects. As a significant portion of its bottom line comes from contracted services, the Group gains from long-term earnings visibility, which further supports its rating. 

DIALOG’s top line jumped to RM3.00 bil in FY Jun 2023 (FY Jun 2022: RM2.32 bil) owing to higher revenue from all segments. However, pre-tax profit stayed relatively unchanged at RM533.14 mil, weighed down by elevated costs and project delays in the downstream segment. Upstream earnings were stronger in line with higher oil and gas output, including the contribution from the Group’s recently acquired production asset in Thailand, while earnings from the midstream segment remain stable. 

Earnings are anticipated to slowly recover in the quarters ahead as downstream loss-making contracts are gradually replaced. Over the next three years, the Group’s bottom line is seen to benefit from a pick-up in maintenance jobs and possibly large engineering, procurement, construction and commissioning contracts related to the Pengerang Integrated Petroleum Complex as well as modest production growth in upstream operations.

DIALOG’s balance sheet and debt-servicing ability are strong. Total debts continued to trend lower to RM2.26 bil as at end-September 2023, translating into strong gearing and net gearing ratios of 0.37 times and 0.08 times, respectively (end-June 2022: RM2.64 bil, 0.49 times and 0.15 times). Nonetheless, funds from operations (FFO, including dividends received) debt coverage slipped to 0.24 times in fiscal 2023 due to thinner margins for certain operations (fiscal 2022: 0.29 times). 

The Group plans to further expand its upstream producing assets and venture into the downstream manufacturing of process equipment and specialty chemicals while organically growing its midstream segment. Even as borrowings to partially fund these investments may reach RM3.3 bil by end-June 2026, its balance sheet is envisaged to remain sturdy, with gearing and net gearing staying below a respective 0.50 times and 0.30 times. Over the same period, FFO (including dividends received) debt coverage is envisaged to keep above 0.25 times. 

We are cautious that the said expansions – especially if fast-paced, on multiple fronts and into new businesses – may heighten execution risks and expose DIALOG to unfamiliar hazards. Foreign exchange movement and raw material price volatility are other downside factors.


Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my