CIMB Equities Research expects Dialog Group Bhd to deliver strong earnings growth from next year onwards.
KUALA LUMPUR: Maybank Investment Bank Research has tactically upgraded Dialog Group
to a Buy following the recent weakness in share price on concerns over softness in storage rates.
“We see an opportunity to accumulate on this indiscriminate matter,” it said on Tuesday.
The research house said Dialog’s operating fundamentals are intact. Its Pengerang operations are disrupting its regional peers, in terms of capacity, demand and pricing influence.
“Our unchanged sum-of-parts based target price of RM3.58 offers an 11% upside,” it said.
Maybank Research said that contrary to market’s earlier concern, Dialog’s independent tank terminal operations, notably the SPV1 (with a 1.3m cu m capacity) is doing fine.
SPV1 is operating at 80% capacity. Storage rates (for spot) have stabilised in 2Q18 at SGD6.50/cu m following a 10-15% on-quarter weakness in 1Q18 due to the backwardation effect on certain products (i.e. fuel oil).
SPV1 operation accounts for sub-5% of Dialog’s earnings. The Langsat terminal operations (independent) are operating at a 100% capacity (0.75m cu m.
“Dialog’s SPV1 expansion plan (SPV1E) is nearing completion. Phase 1 (0.43m cu m capacity) will start by early 2019 and it will be progressively ramped up to 1.3m cu m over time.
“Meanwhile, Dialog has commenced reclaiming land for its 300 acres (MYR2.5b investment) SPV3 operations. SPV3 is scheduled to start operations by 2020. No contract has been signed to-date, which is natural, pending completion of reclamation,” it said.
Kertih Terminals’ 20-year concession will end in 2020. Dialog and its partners are in negotiations to extend.
Maybank Research said Petronas has indicated its plans to upgrade its refinery in Kerteh by 2022 to produce higher quality fuel and expand the crude type it processes beyond Tapis.
Dialog has a 30% stake in this terminal which has consistently contributed positively to the group’s earnings (RM30mil per annum to net profit).
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