Dialog gets a boost

18 May 2019

Source: The Star



IN a rather sober market that has been traumatised by the escalating trade war between the US and China, Dialog Group Bhd, an oil and gas services company, is turning out to be a bright spark. The group, which is turning out to be an oil tank storage operator, has announced the commencement of the phase three of the Pengerang Deepwater Terminals (PDT) project. Unlike the earlier phases where it partnered international oil companies such as Vopak, this time Dialog is taking the lead in the development of phase 3 of the PDT project.

The company will have a 90 % stake in phase three with the state holding 1.0%.

A new development in developing phase three is the entry of BP Singapore Pte Ltd, a Singapore-based company of marketing and trading of petroleum products. Dialog entered into a long-term storage agreement with BP Singapore Pte Ltd, a company that is into marketing and trading of petroleum products. According to Dialog, phase 3 of PDT project will have storage tanks with a capacity of 430,000 m3 for clean petroleum products, and provide storage services for BPS. The project is expected to be completed in mid 2021. It involves the reclamation of 300 acres of land within the PDT area at a cost of RM2.5bil. The reclamation works started in May 2018 and expected to be completed by end of this year.

"The agreement represents the partnership between Dialog and a clientele or offtaker for the Pengerang Deepwater Terminals Phase 3. This development fortifies Dialog's long-term and recurring income portfolio,' says an analyst.

As for the earning s potential, analysts are still uncertain as to how much PDT phase 3 would add to Dialog' s income stream.

While positive on this update, Public Invest Research opines that it is still preliminary to gauge the potential earnings contribution of the long-term storage agreement to Dialog' s earnings.

"It will be somewhat dependent on the final structure and terms of the agreement," says Public Invest Research in a recent report.

CGS-CIMB, in a recent report, raised its equity stake assumption for Dialog in PDT phase three to 60%, up from 45 % earlier.

It noted that while Dialog will own 90% of PDT phase 3, giving up stakes to the Johor state government, it expected to bring in additional equity partners in the future.

"Eventually, Dialog will rope in additional equity partners in the future, but Dialog's ultimate stake is not yet known. Speaking to the company, we understand that Dialog will be comfortable with a majority stake, having gained operating expertise and experience in the earlier phases 1 an d 2 of PDT, " it says.

The research house says its previous target price of RM4.0 4 assumed that Dialog will hold a 45 % stake in PDT phase 3.

Assuming a 51 % stake, it says, the sum-of parts could be raised to RM4.26, and up to RM5.3 4 with an 80 % stake assumption. It' however expects that Dialog is likely to end up with a stake "somewhere in between".

Assuming a 60 % equity stake, the research house says the attributable equity value of PP 3 will rise to RM2.23, which will lift its SOP-based target price from RM4.0 4 to RM4.59.

According to RHB Research, Pengerang Phase 3 has been allocated 300 acres of land for development, which is comparable to the combined land sizes of both Phase 1 and 2. As such, the tank terminal project is scalable, in the event of further demand for storage space.

RHB Research expects long-term growth opportunities in Pengerang' s tank terminal capacities going forward, to be anchored by Phase 3. It is estimated that PDT Phase 3 should eventually add approximately five to six million cubic meters of gross storage capacity.

Dialog posted a 21 % year-on-year increase in net profit to RM143.71mil for the third quarter of the financial year ending June 30, 2019 (FY19).

Net profit for the first nine months of the financial year was flat at RM395.13mil. The higher net profit reported during the quarter under review was mainly attributed to cost savings realised on completed projects and an increased share of profit in joint ventures and associates.

The group says the lower revenue for the quarter, which fell to RM636.61mil from RM867.37mil a year ago, was due to the near completion of engineering, procurement, construction and commissioning works in PDT phase 2 projects.

The remaining tank terminal capacities in PDT phase 2 commenced during the third quarter of FY19.

Recall that the first part of PDT phase 2 capacity,-amounting to 700,000 cubic metres was commissioned in the second quarter of last year while the second part of the capacity, which was another 700,000 cubic metres was fully commissioned fully in the quarter under review.

PDT Phase 1, which is currently under expansion for an additional 430,000 cubic metre in capacity, is slated for completion between June and September 2019. In addition to Dialog Terminals Langsat 1 and Dialog Terminals Langsat 2 combined capacity of 647,000 cubic metre, the group plans to expand Dialog Terminal s Langsat 3 into a 300,000 cubic metre storage facility.

This is in line with Dialog' s strategy to grow its sustainable and recurring income.

"Dialog Terminals Langsat 3's first 100,000 cubic metre is expected to be commissioned by the third quarter of 2019 and Dialog shall also begin construction of an additional 200,000 cubic metre of capacity in 2019.

"In addition, the new RAPID refinery and petrochemical plants should unlock more plant maintenance opportunities in the future while Dialog' s engineering, procurement, construction and commissioning (EPCC) arm will see more work from the gradual build-up of Pengerang Phase 3 tanks and facilities, " adds CGS-CIMB.

Going forward, Dialog remains confident that its business model is well structured to manage oil price volatility and currency movements. Its journey from an oil and gas service operator to a deepwater oil tanker and storage provider continues as the company differentiates itself from other players in the industry.