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: CIMB Equities Research has initiated coverage of Dialog Group
with an Add call and a sum-of-parts based target price of RM3.07, as the company has strong earnings growth prospects, coupled with low business risk.
It said on Tuesday Dialog is at the cusp of substantial earnings growth, as the to-be-expanded Phase 1, and Phase 2 of the Pengerang tank farm, will be commissioned from CY19F onwards.
CIMB Research said that continued development at Pengerang will take Dialog forward for the next 15 years, underwriting its EPCC arm, and its plant maintenance and catalyst handling services.
The downside risks include slower-than-expected planting of new tank terminal capacity.
To recap, Dialog’s big break came when the Johor state government approved its application in 2010 to develop the Pengerang Deepwater Terminal (PDT) in southern Johor.
This led to the signing of the JV agreement to develop Phase 1 of the PDT in 2011, followed by two more JV agreements in 2014 to develop Phase 2.
“Dialog’s success in securing the land lease for PDT in 2010 after negotiating for three years, is a critical event that set it up for future financial success, in our view.
“We think Dialog’s second coup d’état happened when Petronas made the decision to build an oil refinery and steam cracker at the RAPID complex in Pengerang, followed by Petronas Chemicals’ plan to build three petrochemical plants in the same area.
“This downstream industrial hub is a natural source of significant tank storage demand. Dialog can more than double its tank terminal capacity, in our view.
“Over the next 10-15 years, it is targeting to more than double its equity share of tank terminal capacity, by securing new long-term off-takers for new phases of its PDT development.
“We think this is even more likely to be achieved given Petronas’s presence at Pengerang,” it said.
CIMB Research pointed out that Singapore’s Jurong Island, a synergistic oil refining, petrochemical and tank storage hub, shows what can be achieved when downstream industrial players invest in the area.
With the backing of Malaysia’s national oil company, the research house believes the PDT is poised to grab tank terminal market share from the regional incumbent, Singapore, directly benefitting Dialog.
The PDT is being developed with the latest technological know-how, and will have deep and uncongested berths, and comprehensive pipeline connectivity.
By comparison, Jurong Island’s terminals were built without intra-island pipeline connectivity, which results in significant berth congestion, leading to inefficiencies and higher costs.
“As new PDT developments take shape, we believe Dialog’s EPCC business will benefit from the in-house tank terminal construction work, keeping it busy for the next 10-15 years,” it said.
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