However, the oil and gas services firm said the higher revenue from these projects was partially offset by lower sales in specialist products and services.
KUALA LUMPUR: Public Invest Research has initiated coverage of Dialog Group Bhd
with an Outperform due to its resilient recurring income model attributed to its role as a leading integrated technical services provider in the midstream, upstream and downstream sectors in the O&G and petrochemical industry.
The research house said on Monday it likes the group’s major growth driver as a prominent player in the Pengerang Deepwater & LNG Terminal to build, own and operate the terminal with tankage and marine facilities.
“This major development will continue to boost the group’s earnings to reflect a five-year profit after tax and minority interest (PATAMI) compounded annual growth rate (CAGR) of 16.7% between FY13 to FY18F and further sweetened by its steady cash flows (ROIC more than 12.3% FY18F onwards).
Public Invest Research pointed out forward returns on equity (ROE) is also projected to rise and stabilise at more than 15.0% levels, supporting the efficiency of the group to be able to generate more profits without having to increase its capital.
“We thus initiate coverage on Dialog with an Outperform view, supported by our sum-of-parts-derived target price of RM2.05.
“We see the current period as an opportunity to accumulate prior to the group being fundamentally re-rated FY17F onwards. The group’s forward-FY18F P/E is also trading at 22.0 times lower versus its global peers at 25.8 times,” it said.
The research house said the re-rating view is premised on LNG regasification facilities (4QCY17) and Pengerang dedicated industrial terminal to Petronas (1QCY19) to commence operations in their respective stages; Petronas’ unwavering commitment to downstream activities in particular PIPC which dispels any progress uncertainties, and outlook on oil price uptick and stabilisation at U$50 to US$60 barrel levels.
Dialog’s share price performance has maintained its current levels (0.02 standard deviation since oil price plunge September 2015 to current), despite its oil peers having plunged more than 30% on average.
Some key performance indicators for re-rating: i) Earnings growth are five CAGR of 16.7% for FY18F, ii) growing ROIC more than 12.3% FY18F onwards and iii) stabilised ROE at c.15.0% FY17F onwards. The group is also in a net cash position, thus balance sheet ready for any future expansion.
“Entrenched long-term growth supported by its O&G service chain from downstream, midstream to upstream activities.
“They are i) Tank terminals business in Kertih, Langsat, RM2bil Pengerang SPV1, RM6.3bil SPV2 dedicated industrial terminal to Petronas (with RM5.5bil EPCC portion to Dialog) and RM2.7bil SPV3 contract for the LNG regasification facilities coupled with long-term earnings visibility of up to 60 years, ii) engineering, procurement, construction & commissioning (EPCC), specialist products & services, fabrication and ePayment technology & solutions, and iii) development & production of mature fields - D35/D21/J4 and Bayan,” it said.
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