Pengerang development bolsters Dialog`s growth - The Malaysian Reserve

YE TO JUNE 2017 2018F 2019F 2020F
REVENUE (RM mil) 3,392.9 3,575.4 3,753.0 3,948.3
CORE NET PROFIT (RM mil) 348.2 373.3 422.8 467.6
CORE EPS (sen) 6.1 6.4 7.9 9.1
FD CORE EPS (sen) 6.2 6.6 7.5 8.3
PE (x) 32.4 30.2 26.7 24.1
Pengerang development bolsters Dialog`s growth

25 Sep, 2017
Source: The Malaysian Reserve

►Recommendation: Buy
FAIR Value: RM2.45
by Amlnvestment Bank Bhd (Sept 21)

our 'Buy' recommendation on Dialog Group Bhd with a higher SOP-based fair value of RM2.45/ share (from an earlier RM2.24/ share), which implies a CY18F PE of 35x — 24% below its fiveyear average.

Our higher valuation is driven by:

• Assumptions for an additional lm cu m of storage for Dialog's 45.9% stake in Pengerang Deepwater Terminal (PDT) Phase T. In August this year, its partner Royal Vopak NV announced that Phase 1 will be progressively expanded from 1Q19 by 430,000 cu m for clean petroleum products, raising its total capacity by .33% to 1.7m cu m.

• Assuming that Phase 3, which Dialog is still in the process of negotiating with off-takers, will have the same storage capacity and equity stakes as Phase 2's 2.1m cu m.

• Raising the valuation of Pengerang land from RM30 psf to RM50 psf for Dialog's estimated stake of 65% in the larger 650-acre (263ha) industrial and buffer zone. Note that property agents' asking price for industrial land in adjacent Sg Rengit in Pengerang has reached over RM100 psf currently.

We have also raised Dialog's FY18F-FY20F earnings by 5%-8%, incorporating higher contributions from Pengerang Phase 1 and an increase of RMlOOm for the group's FY18FFY20F engineering, procurement and construction order book assumption.

The RM5.5b contract for the construction of the RM6.3b PDT Phase 2 currently occupies Dialog's fabrication, engineering and construction division, and underpins the group's earnings over the next two years.

The progress of PDT Phase 2 is on track as the Refinery and Petrochemical Integrated Development (Rapid) complex remains on schedule with progressive completion in 2018-2019. Additionally, the RM2.7b liquified natural gas regassification plant and storage tanks, in which Dialog has a 25% equity stake, are scheduled for progressive completion starting in 4Q17 to 2Q18.

The overall Pengerang development undergirds Dialog's long-term growth prospects as the group is currently securing new potential partners for Phase 3 and future phases, which will be part of an additional 890-acre zone comprising further reclaimable land and the adjoining buffer zone.

This caters to additional petrochemical, storage and support facilities which will be needed to support Petroliam Nasional Bhd's nearby Rapid project.