Dialog’s capacity expansion fuelling long-term growth - The Edge Financial Daily


Dialog’s capacity expansion fuelling long-term growth
29 Dec, 2017
Source: The Edge Financial Daily

 

Dialog Group Bhd
(Dec 28, RM 2.53)
Maintain buy with a higher target price (TP) of RM2.97: We remain positive on Dialog Group Bhd due to an expected sustained growth in earnings. Dialog has signed a sales and purchase agreement with MISC Bhd to acquire the remaining 45% interest in previously jointly-controlled Centralised Terminal SB (CTSB).

The purchase consideration is RM127 million. Including a RM487.8 million provision of cash flow deficiency support for project financing secured by the joint venture, the total cost of acquisition amounts to RM614.8 million.

As this is below our discounted cash flow (DCF) valuation for a 44% stake in CTSB of RM1 billion, this suggests that the acquisition is value accretive.

On Nov 10, Dialog entered into a lease agreement and sale of facilities with Johor Corp (JCorp). There are two major components of the deal, that is a 30-year lease for two parcels of land (plot A and plot B) at Tanjung Langsat (Johor) for RM62 million and the purchase of an existing tank terminal facility at Plot A for RM91 million.

This existing tank terminal possesses a capacity of 100,000 cu m. The combined land area allows for further capacity expansions for the tank terminals — an additional 200,000 cu m. This brings Dialog’s total capacity at Tanjung Langsat to more than 900,000 cu m.

Phase 1 of the Pengerang Deepwater Terminal (PDT), with 1.3 million cu m of capacity, has been operational since 2014.

However, the terminal’s further capacity expansion — by an additional 430,000 cu m — is currently on track to be commissioned progressively from 2019. Phase 2 of the PDT — a dedicated terminal for Petronas with two million cu m capacity — is progressing within schedule, and is slated for completion by end-2019.

We believe Dialog is likely to proceed with a further expansion of its tank terminal capacity of 1.2 million cu m gradually (expected commencement: 2022). This is as demand for petroleum products and crude oil storage space would be strong upon completion of the many petrochemical facilities in the area.

We revise our financial year ending June 30, 2018 (FY18) to FY20 earnings estimates upwards by 5.3%, 3.7% and 2.7% respectively to account for consolidation of the remaining 45% stake in CTSB post completion of the acquisition. Our sum-of-parts-based TP is also increased to RM2.97.

This is as we factor in the DCF value of the acquisition of the aforementioned CTSB stake, expansion and acquisition of 300,000 cu m of additional capacity at Tanjung Langsat, and further expansion in the PDT’s capacity of 1.2 million cu m.— RHB Research, Dec 28

Dialog Group Bhd

FYE JUNE (RM MIL) 2016 2017 2018F 2019F 2020F
Total turnover 2,534 3,393 3,376 3,110 3,110
Reported net profit 291 379 414 442 463
Recurring net profit 287 328 414 442 463
Recurring net profit growth (%) 11.8 14.3 26.0 6.8 4.8
Recurring EPS (RM) 0.05 0.06 0.07 0.08 0.08
Recurring PER (x) 46.2 42.8 33.9 31.8 30.3
P/BV (x) 5.50 5.32 4.86 4.46 4.09
P/CF (x) 30.0 33.7 36.6 34.9 35.9
EV/Ebitda (x) 31.1 27.3 22.7 24.1 23.6
Return on average equity (%) 13.3 15.0 15.0 14.6 14.1
Net debt to equity net cash net cash net cash net cash net cash
Our vs consensus EPS (adjusted) (%)     8.8 5.4 10.5

Sources: Company data, RHB