Strong energy storage rates a boon for Dialog

UOBKH Research believes there is room for Dialog to improve on its ancillary services income at its storage facilities.

PETALING JAYA: Analysts see an earnings recovery for Dialog Group Bhd in its financial year ending June 30, 2025 (FY25) driven by strong energy storage rates and a pick-up in business at its Jubail Supply Base in Saudi Arabia.

UOB Kay Hian (UOBKH) Research noted although storage costs are at peak levels at S$6 to S$7 per cubic m, most of Dialog’s independent terminal’s capacity at Pengerang Independent Terminals and Langsat Terminals had been renewed at the high rates, while about 50% capacity may see the next renewal only from December this year, which coincides with the second half of Dialog’s FY25.

The research house believes there is also room for Dialog to improve on its ancillary services income at its storage facilities which now stands at below 10% of storage income. Dialog’s Jubail Supply Base is set for a rebound in activity, UOBKH Research added.

“Dialog guided that its operational expenditure for the midstream business is under control. However, observing an established case where Fujairah storage rates reached US$12 per cubic m during the onset of the Russian-Ukraine crisis, we do not discount a possibility for a ‘premium’ on top of base rates, akin to the geopolitical risk premium on crude oil price”, UOBKH Research stated in a report on Dialog.

It added that since the Russia-Ukraine crisis broke out, the risks are still increasing, driven by energy security against geopolitical/shipping delay risks alongside emerging new demand for alternative/clean fuel storage.

Jubail Supply Base’s contribution to Dialog’s third quarter (3Q24) earnings fell quarter-on-quarter to RM19mil in pre-tax profit due to the Ramadhan period, but work scope is set to pick up in the midstream space in the coming months.

Meanwhile Hong Leong Investment Bank (HLIB) Research’s report on Dialog noted 24,000 cubic m of renewable fuel tanks at Langsat phase three is slated for completion by end 2024 and will be running at full capacity next year.

Another 200,000 cubic m additional capacity to be developed in Langsat is still in the feasibility studies stage and will likely reach final investment decision (FID) in 2025 in its view.

Dialog’s upstream production assets will continue to face production challenges and may require fresh investments. Its ongoing feasibility studies for Baram Junior Cluster is progressing well and will likely reach FID by end of 2024, the research houses noted

Earnings could also get some support from Dialog’s downstream segment after the company’s move to focus on executing internal engineering, procurement, construction and commissioning (EPCC) jobs for its Morimatsu-Dialog JV module production facility and malic acid plant, which are slated for completion in 1Q25 and 2Q26, respectively.

“Dialog will likely earmark most of its EPCC resources to internal jobs in the coming years, as it embarks on terminal expansion in Langsat and Pengerang,” HLIB Research said.

UOBKH Research added that if connectivity and infrastructure improvement was in the Special Economic Zone (SEZ) masterplan, then EPCC opportunities will be an immediate benefit for Dialog to pursue as well.

“It is also possible that long-term storage demand can be boosted by the SEZ and other related events, including the entry of RongSheng into Pengerang and Aramco’s rumoured acquisition of Shell’s retail stations in Malaysia,” it forecast.

It noted Dialog’s malic acid plant will be the first of its kind in South-East Asia and with access to Kuantan Port, over 60% of its 12,000 tonnes per annum production capacity is planned for exports upon completion in 2Q26.

Both the research houses maintained their “buy” calls on Dialog with UOBKH Research putting a target price (TP) of RM3.10 a share on the counter and HLIB Research a TP of RM3.

UOBKH Research’s TP is pegged to its FY25 valuations and at 29 times price earnings multiple while HLIB Research’s TP was based on a sum-of-part derived valuation method.

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