Maybank IB Research upgrades Dialog to `buy`

1 August 2018
Source: The Star

KUALA LUMPUR: Maybank Investment Bank Research has tactically upgraded Dialog Group Bhd to a "buy" following the recent weakness in its share price on concerns over softness in storage rates. "We see an opportunity to accumulate on this indiscriminate matter," it said in a note yesterday. The research house said Dialog's operating fundamentals are intact. Its Pengerang operations are disrupting its regional peers, in terms of capacity, demand and pricing influence. "Our unchanged sum-of-parts based target price of RM3.58 offers an 11% upside," it said. Shares of the company which provides services in the oil and gas and petrochemical industries, rose 10 sen or by 3.11% to close at RM3.32 with 15.16 million shares done.

Maybank Research said that contrary to market's earlier concern, Dialog's independent tank terminal operations, notably the SPV1 (with a 1.3m cu m capacity) is doing fine. SPV1 is operating at 80% capacity. Storage rates (for spot) have stabilised in 2Q18 at SGD6.50/cu m following a 10-15% on-quarter weakness in 1Q18 due to the backwardation effect on certain products (i.e. fuel oil). SPV1 operation accounts for sub5% of Dialog's earnings. The Langsat terminal operations (independent) are operating at a 100% capacity (0.75m cu m). "Dialog's SPV1 expansion plan (SPV1E) is nearing completion. Phase 1 (0.43m cu m capacity) will start by early 2019 and it will be progressively ramped up to 1.3m cu m over time. 

"Meanwhile, Dialog has commenced reclaiming land for its 300 acres (RM2.5bil investment) SPV3 operations. "SPV3 is scheduled to start operations by 2020. No contract has been signed to-date, which is natural, pending completion of reclamation," it said. Kertih Terminals' 20-year concession will end in 2020. Dialog and its partners are in negotiations to extend it. Maybank Research said Petronas has indicated its plans to upgrade its refinery in Kerteh by 2022 to produce higher quality fuel and expand the crude type it processes beyond Tapis. Dialog has a 30% stake in the terminal which has consistently contributed positively to the group's earnings (RM30mil per annum to net profit).