AmBank positive on Dialog Group’s valueaccretive Tanjung Langsat expansion - Malay Mail

AmBank positive on Dialog Group’s valueaccretive Tanjung Langsat expansion
14 Nov, 2017
Source: Malay Mail


KUALA LUMPUR — AmBank Research maintained its “buy” recommendation on Dialog Group Bhd, with a higher sum-of-parts (SOP) fair value of RM2.75 per share (from an earlier RM2.70 per share) that implied a current year forecasted (CY18F) price-to-earnings (PE) of 37x — 20% below its 5-year average of 46x.

AmBank Research said that its higher SOP stemmed from the inclusion of an assumed 300,000 cubic metres (m³) expansion of storage facilities in Tanjung Langsat, increasing the 650-acre buffer-land value in Pengerang by RM20 per square foot (psf) to RM70 psf and raising CY18 PE for the group’s specialist, technical and maintenance services to 18x from the earlier 15x.

AmBank Resarch said Dialog now trades at a CY18F PE of 28x, below its 5-year average of 46x and views the premium valuation as justified given Dialog’s sustainable recurring cash flow-generating businesses and further underpinned by the Pengerang development’s multi-year value expansion.

AMBank Research said that given Dialog’s large earnings base, its FY18F-FY20F earnings are only slightly revised from the additional 100,000 m³ storage from the proposed acquisition.

Dialog has entered into a 30-year agreement with Johor Corp to lease two land parcels — measuring 35 acres — for RM62 million.

The land parcels are located next to the group’s 80%-owned Tanjung Langsat Terminals (LGT) 1 and 2. The price works out to RM43 psf for the 30-year lease, which is comparable to industrial land leases in Tanjung Langsat.

Dialog proposed to acquire a 100,000 m³ tank terminal facility for petroleum and petrochemical products, situated on one of the parcels for RM91 million at RM0.9 million per 1,000 m³ capacity. This is fair compared to the cost of RM1 million per 1,000 m³ to build a new storage facility.

“Recall that Dialog has recently acquired the remaining 45% equity stake in Centralised Terminals S/B (CTSB) for RM137 million cash from MISC, while assuming its RM56 million shareholder loan, which translated to a highly value-accretive acquisition PE of 7x since the acquisition was internally funded,” AmBank Research wrote.

Dialog, via CTSB, now directly has an 80% equity stake in a total storage capacity of 647,000 m³ (directly owned by LGT 1 and 2) on a 50-acre land while Trafigura owns the remaining 20%.

CTSB also owns a 100% equity interest in the currently dormant LGT 3. Both terminals are part of the storage and trading hub for oil and gas in Johor, and are also within the vicinity of one of the largest refining and petrochemicals, trading and storage centres in Asia.

However, Dialog did not proceed with the expansion of 380,000 m³ under LGT 3 back in 2012 as the depth of the port was not dredged as agreed with the Johor port authorities.

Ambank Research said that it remains positive on this value-accretive acquisition which expands the group’s longer-term recurring earnings base, which is largely cushioned from volatile crude oil price cycles.