Slight profit boost seen for Dialog from extra Tanjung Langsat stake Slight profit boost seen for Dialog from extra Tanjung Langsat stake
12 June 2018
Source: The Edge Financial Daily
Reiterate buy with an unchanged fair value of RM3.90: We are positive on Dialog Group Bhd’s acquisition of the remaining 20% stake in the centralised tank terminal facilities in Tanjung Langsat 1 and 2 from Puma Energy Asia Pacifi c BV for RM95 million, including the assumption of RM32 million debt due from Puma.
Operational since 2009 and strategically located near the international shipping lanes in the vicinity of Singapore, the two terminals have a total storage capacity of 647,000 cubic metres (cu m) and are currently fully utilised on term contracts.
Dialog also wholly owns the equity interests in Langsat Terminal (Three) Sdn Bhd (LGT 3), which acquired two parcels of lease land and a 100,000 cu m tank terminal in Tanjung Langsat, Johor, in March 2018 for further capacity expansion.
As LGT 3 can support the development of another 300,000 cu m of storage capacity, Dialog’s total tank terminal storage capacity in Tanjung Langsat could expand by 40% to one million cu m. Given Dialog’s gross cash of RM1.3 billion and a low 0.1 times net gearing as at March 31, 2018, we expect the group’s internal funds to easily fi nance the acquisition.
We estimate that the acquisition, which translates into a price-earnings ratio (PER) of nine times, could add RM9 million or 2% to Dialog’s fi nancial year 2019 (FY19) earnings. As the increase will be insignifi cant to the group, our forecasts are unchanged for now.
Meanwhile, the main valuation rerating catalyst for the group stems from its Pengerang Deepwater Terminal (PDT) project. The group’s progress on the RM6.3 billion PDT Phase 2 is on track as the Refi nery and Petrochemical Integrated Development complex remains on schedule with progressive completion in early 2019.
Earlier this year, the group signed a memorandum of understanding with the Johor state government to develop PDT Phase 3.
Dialog trades at an FY19 PER of 36 times, below its fi ve-year peak of 46 times. We view its higher-thanpeer premium as justified given Dialog’s long-term recurring cash flow-generating businesses, which are largely cushioned from volatile crude oil price cycles, and further underpinned by the Pengerang development’s multi-year value rerating bonanza together with a healthy balance sheet.