Dialog's outlook brightens


Dialog's outlook brightens
25 Nov, 2017
Source: The Star

By DANIEL KHOO danielkhoo@thestar.com.my

Strong pipeline: An artist's impression of Dialog's oil storage terminal in Pengerang. If the normalisation of rates proves to be a temporary phe-nomenon, Dialog will still benefit from the strong pipeline of expansion activities it has planned in the near to medium term even as the Pengerangphase two soon kicks into gear.

Oil and gas company eyes double-digit growth in fiscal 2018 following good first quarter

THE coast looks clear for oil and gas logistics and services provider Dialog GroupBhd following stellar results for its first quarter ended Sept 30.

The quarter saw it building upon its strengths in financial year 2017, delivering a sound double-digit growth by almost dou-bling its net profit to RM160.93mil.

The recent strengthening of oil prices has also aided its prospects even as the company plans to venture further upstream toacquire viable production assets.

A company spokesperson tells StarBizWeek that it is not in serious talks but continues to be on the lookout for such opportunities.

Dialog attributed this growth to improved contributions from the group's terminal operations in Pengerang, Tanjung Langsat and Kertih.

"More importantly is that these must make money for us. If a good asset comes along we will seriously look into it. There is no timeline for this to happen," the spokesperson says.

Its track record has been pretty good since its listing as the company has seen steady growth until today.

Dialog also managed to sustain shareholder values even in the height of the oil price correction seen more than three years back.

From a mere RM33.9mil in shareholders equity since its listing back in 1996, the company today had grown this figure to some RM3.35bil on Sept 30 - a respectable feat indeed.

Notably, shareholders equity had seen robust growth despite the 2014 gradual oil price correction that began in June.

In its financial year 2017 (FY17), its revenue rose by a solid 33.9% to RM3.39bil and its net profit rose by 23.8% to RM373.1mil from the previous year.

The company remains optimistic of its prospects, as its share price broke out of its long mundane trading range earlier this year and now continues to breach daily historical highs.

"We are targeting a double digit growth in our bottomline based on our existing business model," the spokesperson says.

Dialog is presently trading at a historical price to earnings ratio (PER) of 29.79 times and a forward FY18 estimated PER of 33.42 times, according to statistics on the Bloomberg.

Analysts covering the company remain upbeat and most of them have "buy" calls on the stock.

Out of 16 analysts covering the stock, 11 of them have rated the stock a "buy" while another five put it at a "hold" or "neutral."

Its shares have also sustained its recent gains but there could be some developing concerns of normalising storage rates that have been apparent across the causeway in Singapore.

UOB Kay Hian Research's (UOBKH) analyst Kong Ho Meng notes that long term rates in which the company derives most of its income from have also now been revised downwards, citing a Platts article that was published earlier this month.

"Market forces tend to dictate this and rates in Pengerang would usually follow what happens in Singapore.

"Contracts that have already been secured won't be affected but those coming under renewal and expiring this year would be affected," Kong tells StarBizWeek.

"It has been happening since March and to me this is a big concern.

"Storage rates have been very high of up to S$9 per cu m in their peak and if these lower rates persist then it will definitely affect the company moving forward," he adds.

He notes that rates in Pengerang will usually follow those in Singapore and they usually followed the Platts benchmark pricing.

To this, the Dialog spokesperson says the company may not be affected much as most of its contracts are on a much longer term basis.

"A small portion of our terminals are for spot rates at 9%-10% of capacity. Longer term contracts can last up to 25 years, some are 20 years and there are shorter leases also.

"But if prices go up again then we will not be affected by it eventually," the spokesperson says.

Kong, who rates Dialog a neutral with a target price of RM2.35 says in his recent report that it is still too early to assess the impact of contract renewals against the market rate decline that has been happening since March 2017.

According to Singapore's Platts which cited industry sources, leasing fees for onshore storage tanks to store fuel oil in Singapore have been renewed at much lower rates due to the ample availability of floating storage capacity and narrowing margins between cargo and ex-wharf prices.

Industry sources interviewed by Platts suggested that rates have fallen to between S$4 per cu m and S$5.50"per cu m per month for one to two year leases, depending on how many turns per month are included and the attractiveness of the terminal which is down from monthly rates, of S$8 per cu m or more previously signed for periods of one to three years.

Platts notes that Shell was said to have recently renewed its lease at S$5.50 or less, while BP and Lukoil are currently negotiating and are considering not renewing their leases which expire at the end of 2017.

Kong notes that his forecasts conservatively assumes that there will be negligible net income from phase two until late-FY18.

"For every S$1 per cu m change in phase one (Pengerang) monthly rates, our profits will be adjusted by 4% and target price by 12 sen per share," he says.

If the normalisation of rates proves to be a temporary phenomenon, Dialog will still benefit from the strong pipeline of expansion activities it has planned in the near to medium term even as the Pengerang phase two soon kicks into gear.


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