Investment Highlights

• We maintain BUY on Dialog Group with an unchanged sumof-parts-based (SOP) fair value of RM4.15/share, which reflects a neutral 3-star ESG rating. This also implies a CY22F PE of 33x, below its 5-year peak of 39x. This is partly based on a valuation of the 650-acre Pengerang buffer land at RM60.

• Dialog now wholly owns Halliburton Bayan Petroleum Sdn Bhd (HBP), which will be renamed Dialog Bayan Petroleum S/B, by acquiring the remaining 5% equity stake from Halliburton’s Asia Energy Services Sdn Bhd for US$1.8mil (RM7mil) cash.

• In our view, the purchase price is reasonable, largely in line with the acquisition of a 25% stake for US$8.2mil on 27 August 2019 and another 20% stake for US$6.6mil on 13 December 2019.

• While the earlier acquisitions were transacted at attractive PE of 9x in 2019 vs. Dialog’s 29x currently, we understand that HBP remains profitable in 9MFY21 despite the oil demand downturn during the Covid-19 pandemic. Also, HBP is currently debt-free.

• Recall that HBP provides technical services to enhance oil recovery at the Bayan field, offshore Bintulu, Sarawak under an Oilfield Services Contract (OSC) with Petronas Carigali.

• This OSC, which originally arose from a 50:50 joint venture with US-based oil field service provider Halliburton in 2017, now has an unexpired term of 15 years until 2036.

• Besides sharing enhanced production from the OSC, Dialog aims to expand the specialist services needed by this upstream operation, further synergising with the group’s ongoing strategy of developing a long-term recurring income structure which has a portfolio of upstream, mid-stream and downstream activities.

• Nevertheless, we are neutral on this relatively small acquisition, which will not have any significant impact on the group’s earnings and net gearing levels.

• Dialog currently trades at a FY22F PE of 25x, well below its 5- year peak of 39x. We view its higher-than-peer premium as justified given Dialog’s long-term recurring cash flowgenerating businesses underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing levels.

Source: AmInvest Research - 30 Jun 2021