Investment Highlights

• We maintain BUY on Dialog Group with a slightly higher sum-of-parts based (SOP) fair value of RM3.58/share (from RM3.55/share previously) largely by incorporating Pan Orient Energy Corporation’s (POEC) valuation together with minor rollover DCF adjustments. This also reflects an unchanged ESG rating of 3 stars and implies a CY23F PE of 30x, slightly lower than its 5-year average cof 31x.
• We raise FY23F-FY25F earnings by 3-5% mainly to account for the incremental earnings contribution from POEC. This is premised on anticipation that Dialog will be booking in POEC’s maiden contributions in its upcoming 1QFY23 results in mid-November 2022.  Recall that Dialog proposed to acquire the Canada-listed oil company for a cash consideration of US$38.7mil (RM170mil) in early June 2022. Through POEC, Dialog is effectively acquiring a 50% interest in Pan Orient Energy (Siam) (POES), which is the operator of onshore Concession L53/48 in Thailand. Upon acquisition, which was completed in lateAugust 2022, Thai-listed Sea Oil will retain the remaining half of the concession’s equity stake.
• The concession has averaged 1,115 barrels of oil per day (bopd) and realised an average oil price of US$140/barrel in 1HCY22, with plans to further increase production volume in future by drilling new wells. This implies immediate earnings contribution from the asset with further upsides in the event of successful production enhancements.
• In a separate development, the group may be seeing a higher growth from its existing Bayan oilfield services contract (OSC) as the Bayan gas redevelopment project phase 2, offshore Sarawak is gradually making headways towards achieving first gas production.
• Under the current contract terms, Dialog generally provides enhanced oil recovery services and will be remunerated with a share of profit should the Bayan oilfield achieve a production volume above a pre-agreed threshold.
• We gather that the mobile offshore production unit (MOPU), which forms a vital part of the project, will commence operation in 4QCY22 with a target to achieve first gas by 1QCY23. With a guided gas processing capacity of 100mil cubic feet per day as well as utilisation rate assumption of 50% for the gas platform, we estimate that the Bayan phase 2 gas project could boost the Bayan oilfield’s gas production by an additional 50mil cubic feet per day.
• Despite the potential increase in production volume from 2023 onwards, our forecasted earnings contributions from the Bayan OSC are unchanged as we have mostly factored in this expansion earlier.

Source: AmInvest Research - 25 Oct 2022