Dialog underpinned by Pengerangs expansion

REVENUE (RM mil) 2,534,5 3,314.0 3,475.4 3,553.0
CORE NET PROFIT (RM mil) 307.8 344.2 368.9 412.4
FD CORE EPS  (sen) 5.9 6.2 6.6 7.4
PE(x) 31.8 31.8 28.4 25.4
Dialog underpinned by Pengerang's expansion
18 July, 2017
Source: The Malaysian Reserve

FAIR Value: RM2.24

by AmInvestment Bank Bhd (July 17)

Investment Highlights
our 'Buy' recommendation on Dialog Group Bhd with an unchanged sum-of-parts-based (SOP) fair value of RM2.24/share which includes the valuation of 600 acres (242.8ha) of industrial and buffer land in Pengerang at RM30 psf. This implies a CY18F PE of 31x. .

Currently, property agents' asking price for industrial land in Sungai Rengit in Pengerang has reached over RM100 psf.

We visited Dialog's Pengerang Deepwater Terminal (PDT) in Johor last Friday, toured the entire site and tank farms, and were updated on the latest developments. We also saw the ongoing construction works being undertaken by Petroliam Nasional Bhd for the surrounding Pengerang Integrated Petroleum Complex, which have reached up to 54% completion stage currently.

We discovered that Dialog's buffer land between the mainland and its reclaimed area is slightly larger at 650 acres.

 - Also, the total proposed area to be reclaimed has expanded from 500 acres to 680 acres, increasing the group's Pengerang land by 2.7x from its original allocation to 1,330 acres.

From the investments in Phase 1, Pengerang Terminals (Two) Sdn Bhd (SPV2) and SPV3 to date, the total cost of investments already committed has more than doubled to RMllb, exceeding the PDT's original estimates, and is expected to easily double again over the next 10 years.

Meanwhile, the progress work for PDT Phase 2 project is on schedule with the second jetty on track to begin operation on Aug 26 this year, together with the first liquefied natural gas (LNG) tank. Currently, Phase l's jetty has been operational with a utilization rate of 50%-60% since 1Q15.

For the Pengerang LNG regasification project, in which two tanks with a combined capacity of 200,000 cu m are being built at a cost of RM2.7b, the first tank will be completed soon while the second tank by December 2017. For SPV2, the targeted commissioning is still scheduled for 2019, in tandem with the completion of Refinery and Petrochemical Integrate d Development.

Currently, Dialog is trading at a CY18F PE of 26x, below its five-year peak of 29x. 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 and further underpinned by the Pengerang development's multi-year value expansion.