PETALING JAYA: Dialog Group Bhd
’s latest engineering, procurement and construction (EPC) contract in Singapore should provide greater revenue visibility and support order book replenishment, although the immediate earnings contribution remains difficult to quantify, says MBSB Research.
The brokerage maintained its “buy” call on Dialog with a target price (TP) of RM2.57, while leaving its earnings estimates unchanged as the value of the newly secured contract has not been disclosed.
“Winning this project will positively impact Dialog Group Bhd’s profitability, primarily by driving medium-to-long-term revenue flow into its EPCM division,” MBSB Research said in its report yesterday.
Dialog’s wholly owned unit Overseas Technical Engineering and Construction Pte Ltd has secured a contract from Aster Port & Terminals (APT) for the expansion of crude oil storage tanks at Pulau Bukom in Singapore.
Singapore-based PEC Pte Ltd has also been awarded a contract by APT for the project, which will raise available crude oil storage capacity at Pulau Bukom by more than 1.3 million barrels.
MBSB Research said the award reinforces Dialog’s position as a key EPC contractor in the downstream oil and gas sector, while providing a platform for further work in the segment.
“Securing this brownfield expansion project reinforces its positioning as primary EPC contractors in the downstream oil and gas sector,” it said.
APT is the newly launched storage and logistics arm of Aster, a joint venture between Indonesia’s PT Chandra Asri Pacific Tbk and Glencore. Its facilities span Pulau Bukom and Pulau Ular, comprising 13 marine wharves, up to 4.3 million cubic metres of tank storage capacity and a single buoy mooring capable of receiving very large crude carriers carrying up to two million barrels of oil.
The infrastructure allows operators to handle large inventory volumes more efficiently, while reducing potential shipping bottlenecks and storage and handling costs.
Nevertheless, the research house cautioned that the contract’s profit contribution could be modest initially. Dialog’s typical EPC gross profit margin is estimated at 8% to 12%, given the higher exposure to materials and labour costs.
“However, should the contract be long-term, wherein Dialog’s EPC continues to secure a high-margin Plant Maintenance and Turnaround Services, gross profit margins may be as high as 15% to 20%.”
It added that risks include volatility in global supply, higher raw material costs, procurement delays, weaker demand for third-party crude storage and execution risks arising from the joint venture.
MBSB Research therefore made no changes to its earnings forecasts pending disclosure of the contract value.
An analyst with a foreign house said she is bullish on Dialog, particularly on the group’s medium-term earnings visibility.
“The EPC award is positive, but we would regard it as a supporting catalyst rather than the main investment thesis.
“The bigger attraction remains Dialog’s resilient, predominantly recurring tank-terminal earnings, healthy utilisation, expanding Pengerang capacity and the potential earnings ramp-up from its upstream assets, including Cendramas and the Baram Junior Cluster,” she told StarBiz.
Dialog’s results for the financial year ended June were also strong, said the analyst, with full-year revenue rising 15% to RM2.88bil and net profit attributable to shareholders almost doubling to RM593.6mil.
The analyst said while the stock’s valuation has rerated, she believes the market is still under-appreciating the combination of recurring midstream cash flow and upstream optionality.
“We therefore recommend a ‘buy’ stance and assign a RM2.70 TP, reflecting reasonable upside while remaining conservative on the valuation of its longer-term growth projects,” she added.
