Tg Langsat expansion lifts Dialog`s SOP higher - The Malaysian Reserve
|DIALOG GROUP BHD|
|YE TO JUNE||FY17||FY18F||FY19F||FY20F|
|REVENUE (RM mil)||3,392.9||3,668.0||3,886.4||4,086.7|
|CORE NET PROFIT (RM mil)||348.2||390.2||441.2||501.6|
|FD CORE EPS (sen)||6.2||6.9||7.8||8.9|
14 Nov, 2017
Source: The Malaysian Reserve
FAIR Value: RM2.75
by Amlnvestment Bank Bhd (Nov 13)
WE REITERATE our 'Buy' recommendation on Dialog Group Bhd with a higher sum-of-parts (SOP) based fair value of RM2.75/share (from an earlier RM2.70/share), which implies a CY18F PE of 37x — 20% below its five-year average of 46x.
Our higher SOP stems from the inclusion of an assumed 300,000 cu m expansion of storage facilities in Tanjung Langsat, increasing the 650-acre (263ha) buffer land value in Pengerang by RM20 psf to RM70 psf and raising CY18F P/E multiples for the group's specialist/technical / maintenance services to 18x from 15x earlier. However, given Dialog's large earnings base, our FY18F-FY20F earnings are only slightly revised from the additional 100,000 cu m storage from the proposed acquisition.
Dialog has entered into an agreement with Johor Corp Bhd to lease two land parcels, measuring 35 acres for 30 years, for RM62m.
They are located next to the group's 80%-owned Tanjung Langsat Terminals (LGTs) 1 and 2. The price works out to RM43 psf for the 30-year lease, which is comparable to industrial land leases in Tanjung Langsat.
The company also proposes to acquire a 100,000 cu m tank terminal facility for petroleum and petrochemical products, situated on one of the parcel for RM91m at RM0.9m per 1,000 cu m capacity.
Recall that Dialog has recently acquired the remaining 45% equity stake in Centralised Terminals Sdn Bhd (CTSB) for RM137m cash from MISC Bhd while assuming its RM56m shareholder loan, which translated to a highly value-accretive acquisition PE of 7x as the acquisition was internally funded.
As such, Dialog, via CTSB, now directly has an 80% equity stake in a total storage capacity of 647,000 cu m on a 50-acre land while Trafigura Beheer BV owns the remaining 20%. CTSB also owns a 100% equity interest in the currently dormant LGT 3.
All-in, we remain positive on this value-accretive acquisition which expands the group's longer term recurring earnings base, which is largely cushioned from volatile crude oil price cycles.
Dialog now trades at a CY18F PE of 28x, below its fiveyear average of 46x. We view the premium valuation as justified given Dialog's sustainable recurring cashflow-generating businesses and further underpinned by the Pengerang development's multi-year value expansion.