PETALING JAYA: Dialog Group Bhd
is an immediate beneficiary of higher oil prices and tight base oil supplies as a consequence of the ongoing war in the Middle East.
CGS International (CGSI) Research said in a report that in the medium to long term, it expects Dialog’s tank terminal business to benefit from a potential transfer of tankage capacity from the Middle East to South-East Asia.
The research house noted that higher oil prices since the start of the US/Israel-Iran war on Feb 28 would benefit Dialog from the third quarter of the financial year ending June 30, 2026 (FY26) onwards, lifting FY26 to FY28 core net profit forecasts by 7% to 12% on the back of higher upstream profit expectations, as it also raised its Brent crude price assumptions.
Even after the Strait of Hormuz reopens, oil prices may not fall back to their pre-war lows of US$60 per barrel, as various refineries and countries attempt to restock their oil inventories, it added.
“As a result of the higher oil price assumptions, we raise our valuation of Dialog’s upstream division from 11 sen per share to 27 sen, which includes a tentative nine sen for its future upstream assets.”
On the downstream side, Dialog’s continued access to base oil supplies from Shell’s gas-to-liquids plant at Bintulu has enabled it to secure incremental sales volume from offshore drillers, given the global shortage of supplies arising from the war in Iran.
This will benefit Dialog’s specialist products and services division, it said. In the long term, the research house is expecting Dialog to capitalise on the current opportunity to successfully broaden its global customer base for base oils.
It noted that Dialog’s engineering, procurement, construction, and commissioning arm may face upward cost pressure, although Dialog has taken steps to order as much of the required equipment upfront to mitigate cost inflation.
“Also, all except one of its tank terminal construction projects are in-house projects that do not show up in the consolidated financial statements.”
Meanwhile, CGSI Research said it does not think that it would be possible in the immediate future for Pengerang, or for Malaysia as a whole, to serve as a strategic storage hub for other countries.
However if the government changes its stance on this issue in the future, the research outfit believes that Dialog’s Pengerang will be in a strong place to secure such business, it said.
At last look, Dialog was at RM2.29. CGSI Research has a target price of RM2.46 on it.
