Dialog’s EPCC business promising in the long run - The Edge Financial Daily

Dialog’s EPCC business promising in the long run
19 Oct, 2017
Source: The Edge Financial Daily


Dialog Group Bhd
(Oct 17, RM 2.21)
Initiate coverage with add and a target price of RM3.07: Dialog Group Bhd was founded in 1984 by Tan Sri Dr Ngau Boon Keat, who remains as its executive chairman. It started out as a marketing agent for several specialist products supplied to the oil and gas industry, while also performing plant maintenance and catalyst handling services. Dialog also had workshops to fabricate various modules for the downstream sector, and an engineering, procurement, construction, and commissioning (EPCC) business that helped set up petrochemical plants and tank terminals. These traditional businesses continue to be active today.

From 1997 onwards, Dialog entered the tank terminals business when it was awarded a 20-year contract for the Kertih tank terminal, followed by an investment in the Langsat terminals in 2007. Dialog’s big break came when the Johor state government approved its application in 2010 to develop the Pengerang Deepwater Terminal (PDT) in southern Johor. This led to the signing of the joint venture (JV) agreement to develop Phase 1 of the PDT in 2011, followed by two more JV agreements in 2014 to develop Phase 2.

Dialog’s success in securing the land lease for PDT in 2010, after negotiating for three years, was a critical event that set it up for future financial success, in our view. We think Dialog’s second coup d’état happened when Petroliam Nasional Bhd (Petronas) made the decision to build an oil refinery and steam cracker at the refinery and petrochemical integrated development complex in Pengerang, Johor, followed by Petronas Chemicals’ plan to build three petrochemical plants in the same area. This downstream industrial hub is a natural source of significant tank storage demand.

The undeveloped parts of PDT represent a major growth opportunity for Dialog. Over the next 10 to 15 years, it is targeting to more than double its equity share of tank terminal capacity, by securing new long-term off takers for new phases of its PDT development. We think this is even more likely to be achieved given Petronas’ presence in Pengerang. Singapore’s Jurong Island, a synergistic oil refining, petrochemical and tank storage hub, shows what can be achieved when downstream industrial players invest in the area.

With the backing of Malaysia’s national oil company, we believe the PDT is poised to grab tank terminal market share from the regional incumbent, Singapore, directly benefiting Dialog. The PDT is being developed with the latest technological know-how, and will have deep and uncongested berths, and comprehensive pipeline connectivity. By comparison, Jurong Island’s terminals were built without intra-island pipeline connectivity, which results in signifi cant berth congestion, leading to inefficiencies and higher costs. As new PDT developments take shape, we believe Dialog’s EPCC business will benefit from the in-house tank terminal construction work, keeping it busy for the next 10 to 15 years.— CIMB Research, Oct 16

Dialog Group Bhd

FYE JUNE (RM MIL) 2016A 2017A 2018F 2019F 2020F
Revenue 2,534 3,393 3,402 3,450 3,458
Operating Ebitda 323.8 374.4 422.0 457.4 457.7
Net profit 295 371 453 800 1,047
Normalised EPS (RM) 0.05 0.06 0.08 0.14 0.19
Normalised EPS growth (%) (1.4) 21.4 31.8 76.7 30.8
FD normalised PER (x) 43.06 35.92 26.91 15.23 11.64
DPS (RM) 0.022 0.027 0.032 0.057 0.074
Dividend yield (%) 1.02 1.23 1.49 2.63 3.44
EV/Ebitda (x) 30.50 26.04 27.49 25.77 23.67
P/FCFE (x) NA 57.65 NA 28.93 26.12
Net gearing (%) (2.8) (0.1) 64.6 57.8 43.3
P/BV (x) 4.71 3.92 3.57 3.02 2.56
ROE (%) 11.8 11.9 13.9 21.5 23.8
Normalised EPS/ consensus EPS (x)     1.15 1.79 2.08

Sources: Company data, CIMB forecasts