KUALA LUMPUR: CIMB Equities Research sees bright prospects for Dialog Group
after its strong set of core net profit and as its projects at Pengerang get underway.
It said on Wednesday Dialog’s core net profit rose by 19% on-year to RM142.9mil during the quarter. This was on the back of the increase in Dialog’s stake in Langsat 1 and 2 from 80% to 100% effective June 7, 2018.
There was also the cost savings realised from the final tally of costs with the completion of its SPV2 project as well as a higher share of associate profits following the commencement of initial commercial operations at Pengerang SPV2 since November 2018.
This was partially offset by lower engineering, procurement, construction and commissioning (EPCC) revenue and earnings following the completion of the SPV2 construction project while the upstream segment probably saw lower earnings due to the lower average oil prices.
Land reclamation activity for PP3, which began in May 2018, is now 62% complete and is on track for full completion by end-CY19F.
Dialog announced on Tuesday that it had signed up its first customer for PP3, i.e. BP Singapore Pte Ltd, which commissioned a clean petroleum product storage facility of 430,000 cubic metres (cbm), to be housed in Pengerang Terminals (Five) Sdn Bhd (SPV5).
“The duration of BP Singapore’s PP3 tank leases was not disclosed but we understand it to be for at least five years and up to 15 years.
“As such, Dialog has started building the common tankage facilities, a jetty and the BP Singapore storage terminal, which are expected to be completed by mid-CY21F,” it said.
BP Singapore is an oil trader and distributor that currently leases several tank storage terminals at Singapore’s Jurong Island and the PP3 tanks are likely to be in addition to its Jurong Island storage.
CIMB Research’s DCF valuation of Dialog’s tank terminal business assumes that PP3 will begin contributing to earnings from FY24F but it now appears that the stream of earnings may commence two years earlier, from FY22F.
“Furthermore, we assume that Dialog will have a 50% equity stake in PP3 but SPV5 may be up to 90%-owned by Dialog while the common tankage facilities and jetty may be up to 80%-owned. These factors suggest potential upside to our valuation of Dialog.
“Pengerang SPV1 Phase 1E’s 430,000 cbm is slated for completion between Jun and Sep 2019F. Langsat 3’s first 100,000 cbm is expected to be commissioned by 3QCY19F and the company will also begin construction of an additional 200,000 cbm of capacity in CY19F.
“In addition, the new RAPID refinery and petrochemical plants should unlock more plant maintenance opportunities in the future while Dialog’s EPCC arm will see more work from the gradual build-up of PP3 tanks and facilities,” it said.