PETALING JAYA: Oil and gas services company Dialog Group Bhd ’s earnings performance for the second half of the financial year ending June 30, 2017 (FY17) is foreseen to be stronger-than-expected, driven by the resilience of high storage rates, said UOB KayHian.
Dialog registered net profit of RM267.1mil for the nine-month cumulative period of FY17, compared to RM217mil in the corresponding period last year.
“Earnings growth in the next two years will be driven by new contributions from the progressive start-up of Phase 2 of Pengerang Deepwater Terminal in FY18 to FY19,” the research house said.
The commercialisation of Phase 2, which is dedicated to Petronas for storage and for import or export purposes, is on track to commence by end-August this year. This is attributed to the mechanical completion for SPV 3-LNG terminals, which make up part of Phase 2. In addition, Dialog also stands to benefit from the government’s refined Goods and Services Tax (GST) measures, whereby companies that provide services to international customers for export will be exempted from the 6% GST charges.
UOB KayHian also noted that inclusive of the 600 acres of land originally desginated as buffer zones, Dialog can carry out expansions in Phase 1 and 2 to boost its capacity by up to 5 million cubic metres for crude oil or petrochemicals, and 720,000 cubic metres for liquefied natural gas (LNG).
On top of that, there would still be additional land for further expansion.
“To date, there has been no sign of any advanced talks for potential expansion.
“However, if such opportunities arise, another 200 to 300 acres of landbank can be reclaimed under a potential ‘Phase 3’.
“Our back-of-envelope calculations suggest a sum-of-total-parts (SOTP) accretion of 47 sen to 90 sen per share if all 5 million cubic metres is developed,” said UOB KayHian.
As a comparison, the research house’s discounted cash flow (DCF) valuation for the existing Phases 1 and 2 of Pengerang is 77 sen per share. Phase 1 of Pengerang is one of only two global storage terminals that passed Vopak’s standards of compliance of excellence with flying colours.
While the storage utilisation is close to full capacity, this achievement will boost the terminal’s long-term customer appeal.