KUALA LUMPUR: AmIvestment Bank Research is maintaining its Buy call on Dialog Group with an unchanged sum-of-parts-based (SOP) fair value of RM4.85 a share.
It said on Tuesday this implies an FY22F PE of 37 times or one standard deviation above its five-year average of 32 times.
“Our SOP maintains the 650-acre Pengerang buffer land valuation at RM80 psf, ” it said.
AmInvest Research's forecasts have been marginally adjusted as it remaind sanguine on Dialog’s earnings resilience amid the Covid-19 carnage together with the ongoing oil price down cycle.
The research house had conducted a teleconference with Dialog's management last week and beow are the salient highlights:
Dialog's earnings growth for 4QFY20 and FY21F onwards will be driven by the full-year contribution of Pengerang Phase 1E’s 430,000 cubic metres storage, which commenced operation in 3Q2019 and Tanjung Langsat 3 terminal’s initial 120,000 cubic metres capacity, of which half commenced in October 2019 and the rest in January 2020.
With tank terminal rates, up by 30% to 40% from end-CY19 to S$6.50 to S$7 cubic metres currently, these will boost the earnings of 10% of Pengerang Phase 1’s 650,000 cubic metres storage, which are on spot charters of up to three months.
However, this could be partially offset by the recent contract renewal of the group’s 30%-owned Kertih tank terminal, which commenced operation in 2000, for another 10 years by Petronas at a rate which could be lower by 10% to 20%.
In 12 to 15 months, Tanjung Langsat 3’s balance 85,000 cubic metres will be operational while another 100,000 cubic metres will commence in 2022. Thereafter, the group still has ample acreage to double its Pengerang storage capacity with a remaining 500-acre zone comprising reclaimable land and the adjoining buffer zone.
Dialog has proactively reviewed its operating expenditures and cut salaries by 5% to 25% beginning in April this year with the largest reductions borne by top-level executives as a
precautionary measure amid expectations of lower service rates from multiple clients, who are bearing the brunt of the unprecedented viral crisis.
“Nevertheless, management has neither experienced cuts in service day rates nor cancellation of orders, although some delays occurred for the integrated technical services segment due to constrained workers’ activities for 2 weeks in April.
“Notwithstanding the low oil price regime, Dialog’s 95%-owned Bayan enhanced oil recovery and 20% stake in the production sharing contracts for the matured D35, D21 and J4 in the Balingian province, off Sarawak, continue to remain in production.
“With a capex commitment of RM500mil, management expects break even under the worst-case scenario for these upstream operations.
“Dialog currently trades at a FY22F PE of 29 times – below its five-year peak of 39 times. We view its higher-than-peer premium as justified given Dialog’s long-term recurring cash flow-generating businesses and low net gearing levels, ” it said.
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