• Dialog’s wholly-owned Dialog Resources has signed the Baram junior cluster small field asset production sharing contract (PSC) with Petronas and Petroleum Sarawak Exploration & Production (PSEP). Dialog Resources will take a 70% participating interest and operatorship of the PSC while PSEP is entitled for the remaining 30% ownership.

• We also understand that the 14-year PSC entails a 2-year pre-development phase for Dialog Resources and PSEP to finalise the field development plan as well as a 2-year development phase with the first commercial production expected by the end of the phase.

• The production phase will follow thereafter for the remaining 10 years or up to the expiry of the contract, whichever is earlier.

• Also note that the PSC includes feasibility studies (encompass 3D seismic data reprocessing, specialised studies and resource assessment) during the predevelopment phase. Based on the outcome of the studies, a field development and abandonment plan will be developed to determine the feasibility and commerciality of the exploration block.

• We are mildly positive on this fresh PSC prospect, which aims to grow the group’s presence in the upstream exploration and production segment (which accounted for 20-25% of FY22 EBIT). This also comes after the completed acquisition of a Thailand onshore producing asset namely the Concession L53/48 back in October 2022.

• In addition, its other upstream assets, including the 100%-owned Bayan oilfield services contract and 20% interest in D35/D21/J4 PSC, are also consistently contributing long-term recurring income to the group. Despite limited disclosure, our back-of-envelop calculations suggest that total investments in the upstream operations may have amounted to RM2.2bil.

• Nevertheless, since the PSC’s details will only be revealed upon the completion of feasibility studies, we maintain our forecasts for now.

• We reiterate BUY on Dialog Group with an unchanged sum-of-parts based fair value of RM3.38/share, which reflects an unchanged 3-star ESG rating. This implies a CY23F PE of 29x, 6% lower than its 5-year average of 31x.

• Dialog currently trades at an attractive CY23F PE of 22x, well below its 5-year mean of 31x.

Source: AmInvest Research - 18 Jan 2023