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
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|
|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|
|Dividend yield (%)||1.02||1.23||1.49||2.63||3.44|
|Net gearing (%)||(2.8)||(0.1)||64.6||57.8||43.3|
|Normalised EPS/ consensus EPS (x)||1.15||1.79||2.08|
Sources: Company data, CIMB forecasts