Dialog acquires balance 60pc equity interest in EC Dialog - The Edge Financial Daily

Dialog acquires balance 60pc equity interest in EC-Dialog
24 Mar, 2017
Source: The Edge Financial Daily


Dialog Group Bhd
(March 23, RM 1.71) 
Maintain buy with a fair value of RM1.97
Dialog Group Bhd acquired the balance 60% equity interest in Singapore-based EC-Dialog Pte Ltd (EC-Dialog) for S$2 million (RM7 million) cash from Winsome Management & Services Pte Ltd, Wong Ming Wah and Tan Geok Tee.

Currently, EC-Dialog wholly owns Catalyst Handling Research & Engineering Ltd, which specialises in catalyst handling, research and engineering in the UK, and has a 49% equity stake in Dialog Catalyst Services Sdn Bhd, which provides catalyst and process material handling services in Malaysia.

Given the relatively low cash proceeds, this transaction, based on net asset valuation, will not have any significant impact to the group's earnings. However, the additional stake in EC-Dialog enables the group to obtain full ownership of the research and technological know-how of catalyst handling while consolidating its catalyst handling services presence in Malaysia and Asia-Pacific region.

Hence, we are mildly positive on this development as Dialog's catalyst handling specialists provide a onestop solution for commissioning and maintaining catalytic reactors, vessels and columns for refinery, petrochemical and chemical facilities. It presendy owns a full range of patented technology which includes "Closed-circuit, Closed-loop" systems, Ultra low attrition, zero-dust emission and zero-spillage hoppers.

At this stage, the main driver for Dialog's earnings momentum lies in its Pengerang tank terminal development in Johor. Recall that the group's progress on the RM6.3 billion Pengerang Deepwater Terminal (PDT) Phase 2 remains on track as the refinery and petrochemical integrated development complex stays on schedule with progressive completion in 2018-2019.

Additionally, the RM2.7 billion liquefied natural gas (LNG) regasification plant and storage tanks, in which Dialog has a 25% equity stake, are scheduled for completion by end-2017. For the Pengerang LNG regasification project, the first tank will be completed by July 2017, and the second by December 2017.

Dialog is also developing 170 acres (69ha) of industrial estate to support petrochemical industries in  the buffer zone between the 500-acre tract of land being reclaimed and the Pengerang mainland. We have not included any potential land value accretion for the buffer zone's estimated 500 acres in our sum-of-parts (SOP), which could be raised by an additional 12 sen or 6% at a conservative assumption of RM30 per sq ft.

Currently, Dialog is trading at a CY17F (forecast) price-earnings (PE) of 27 times, below its five-year peak of 29 times. We view the premium as justified given Dialog's long-term recurring cash flow generating businesses, which are largely cushioned from volatile crude oil price cycles.

We maintain our "buy" recommendation on Dialog, unchanged forecasts and fair value of RM1.97 per share, based on our SOP valuation, which implies a CY17F PE of 30 times. — Amnvestment Bank, March 23