PETALING JAYA: Dialog Group Bhd
’s latest storage capacity expansion at its Dialog Terminals Langsat 3 in Johor will provide encouraging recurring income visibility moving forward, say analysts.
RHB Research, in a report, viewed the expansion positively as it reinforces Dialog’s strategy of growing its recurring midstream income base.
The group’s management indicated the project entails capital expenditure (capex) of up to RM200mil, with a targeted high-single-digit internal rate of return (IRR).
The 100,000 cubic m new capacity will operate under a take-or-pay structure, with storage rates benchmarked against S&P Platts.
While Dialog is actively engaging potential customers and firming up discussions, RHB Research said management remains confident about storage demand at Tanjung Langsat.
Given the targeted completion by mid-2029, the research house said, “We expect meaningful earnings contribution from the financial year 2030 (FY30) onwards.
“As such, we maintain our FY27 to FY29 earnings forecasts and a target price (TP) of RM2.44, which captures the value of Dialog’s core business, terminal assets and upstream operations.”
Meanwhile, MBSB Research estimates a project IRR of 9.5% and total capital expenditure for the latest project to be about RM210mil over a three-year period.
“We arrive at the IRR based on assumptions; earnings before interest, taxes, depreciation and amortisation margins of 80%, an annual maintenance capex of RM2mil, debt-to-equity portion of 70:30 and an annual interest expense of 5%,” MBSB Research added.
The research house also estimated an incremental annual recurring profit of RM6mil to RM7mil from this asset, beginning FY30.
MBSB Research believes Dialog is on track for another record high showing in FY27, underpinned by its upstream-producing assets being well positioned to benefit from the current elevated crude oil price environment.
Other supportive factors include earnings recognition from its 25%-owned Cendramas production sharing contract, first gas from the Baram Junior Cluster in the second quarter of FY27 (2Q27), completion of its 150,000 m3 renewable fuel tanks at Langsat in 1Q27 and stable midstream earnings contribution from its take-or-pay tank terminal leases.
MBSB Research has downgraded the stock to a “neutral” call, but raised its TP slightly to RM2.23 a share from RM2.22 previously.
Going into FY27, Kenanga Research in a report said Dialog’s tank terminal segment will continue to demonstrate resilient growth, which “we expect to persist due to the tight storage situation in Asia”.
The pillar of growth for the group will be in the upstream segment with multiple projects in the pipeline, it added.
Kenanga Research has an “outperform” call on Dialog and raised its TP to RM2.65 per share.
Meanwhile an analyst with a local brokerage firm continues to like Dialog for its potential long-term growth in its tank terminal business, particularly in Pengerang, earnings growth driven by forays into upstream investments coupled with its exposure in the tank storage business which serves as a hedge during recessions.
The analyst said Dialog has early exposure to low-carbon storage solutions while enjoying a take-or-pay rental structure that ensures higher earnings consistency.
