Dialog’s immediate to long-term focus to be on tank farms

Dialog’s immediate to long-term focus to be on tank farms
9 April 2018
Source: The Malaysian Reserve

Maintain neutral with a revised target price (TP) of RM2.83: Dialog Pengerang Sdn Bhd (Dialog) signed a memorandum of understanding (MoU) with the Johor state government and the state secretary, to outline Pengerang CTF Sdn Bhd’s involvement in the development of common tankage facilities and dedicated deepwater marine facilities — known as Pengerang Deepwater Terminals Phase 3. The engineering, procurement and construction work for the reclamation, soil improvement and shore protection work had been awarded to PentaOcean (M) Sdn Bhd. Th e 300 acre (121.4ha) land reclamation work is expected to be completed in 22 months.

The RM2.5 billion project will consist of common tankage facilities and dedicated deepwater marine facility development of more petroleum and petrochemical storage terminals and development of industrial land for further downstream oil and gas related activities.

Pengerang CTF Sdn Bhd is currently a wholly-owned unit of Dialog Terminals Sdn Bhd, which in turn is a wholly-owned unit of Dialog Group. The new structure will see Dialog Terminals Sdn Bhd holding 80% of Pengerang CTF Sdn Bhd while Permodalan Darul Ta’zim, wholly-owned unit of the Johor state secretary, will hold the remaining 20%.

Dialog’s strategy is clear — immediate to long-term focus on tank farms. Pengerang Deepwater Terminal Phase 1 is being expanded by 430,000 cubic metre (m3) while construction of Phase 2 is on schedule.

Dialog’s share price has been volatile on the upside, stoked by positive news fl ows from Pengerang and solid earnings. The company’s forward price-earnings ratio (PER) is currently at 35 times. Given the strong global crude oil price and strong downstream sub-segment of the value chain, we are revising our target price upward to RM2.83 per share (previously RM2.55), whilst maintaining our neutral recommendation with positive bias. Our valuation is based on a sum-ofparts method pegging a PER of 28 times at its core businesses such as engineering, procurement, construction and commissioning (EPCC), plant maintenance, specialist and catalyst. As for the centralised tankage facility business, our discounted cash fl ow is based on a discount rate of 8%. — MIDR Research, April 6