Kenanga maintains outperform on Dialog following Langsat purchase

KUALA LUMPUR: Kenanga Research is positive on Dialog Group Bhd's move to take full control of Langsat after purchasing the remaining 20% stake in the Terminals 1 and 2 for RM62.6mil.

The research house said the purchase will increase the group's effective tank capacity by 10% and further contribute about RM6mil per annum to its recurring income stream.

"We also find the purchase consideration PER of 10.4x a bargain as DIALOG had previously
purchased the 36% effective interest in Langsat 1 and 2 from MISC at PER of 13.7x (consideration of RM137m) back in Sept 2017. 

"Post-acquisition, DIALOG’s net gearing is still very manageable at 0.08x (from 0.06x as of 3Q18)."

Kenanga added that the construction progress for Pengerang Deepwater Terminal Phase 2 is intact with targeted completion in early FY19. 

It said Dialog is in the process of securing more partners for Pengerang Phase 3 to build more storage terminals. 

"Recall that DIALOG has entered into a MoU with Johor State to further develop Pengerang Phase 3 in April 2018 with an initial investment amount of c.RM2.5b. 

The land reclamation contract for Pengerang Phase 3 has been awarded to Penta Ocean and we believe the entire 300 acres land could add storage terminals of 5m-6m m3 in phases, with the initial capex (of RM2.5b) adding c.2m m3 capacity."

The research house maintained outperform on the counter with a higher target price of RM3.80 from RM3.70 previously. 

"Post-acquisition, we upgrade our FY19E earnings by 1.3% or RM6m after accounting for the additional 20% stake in Langsat 1 and 2. 

"We make no changes to FY18E earnings as contributions from the acquisition would be minimal given that it will only contribute <1month June)."