Investment Highlights

• We maintain BUY on Dialog Group with an unchanged sum-ofparts based (SOP) fair value of RM3.31/share, which also reflects an unchanged 3-star ESG rating. This implies a CY23F PE of 32x, 0.25 standard deviation above its 5-year average of 31x.

• We maintain our forecasts following a site visit to the group’s Pengerang Deepwater Terminals (PDT). These are the salient highlights from the visit:

• Throughput at the tank terminal is gradually improving on the back of the berthing of a higher number of incoming vessels. The terminal, which currently houses a combined storage capacity of 3.8mil cubic meter (cbm), has berthed close to 200 vessels in February 2023. This represents a remarkable improvement compared to 1,170 vessels (averaging 98 vessels per month) in FY22.

• Independent tank terminals within PDT also charted higher utilisation rates and monthly spot storage rates. At the end of February 2023, the utilisation rate of its independent terminals within PDT increased to above 90% - a slight improvement from 90% back in 2QFY23. The monthly spot storage rates have also climbed to slightly above S$6/cbm compared to S$5.5-6/cbm previously.

• Management also remains optimistic on long-term prospects underscored by a thriving pipeline of potential expansions in PDT Phase 3. From conversations with management and key personnel, we understand that there has been a number of visits by prospective clients since the beginning of this year. This suggests that clients’ interest in exploring expansions in PDT Phase 3 remains robust due to PDT’s strategic location.

• Management also shared their views on the ballooning receivables of its 25%-owned Pengerang Terminals 2 (PT2SB) – the dedicated tank terminals for Petronas’ refinery and petrochemical integrated development (RAPID) with a storage capacity of 1.3mil cbm. There have been looming concerns on PT2SB’s rise in account receivables to EUR173mil as at end-2022 from EUR88mil in 2021, as flagged by co-owner Royal Vopak (who owns a similar 25% stake in PT2SB) recently, alluding to potential default of payment by Petronas. Management reassures that the earnings impact from rising receivables is manageable given the clients’ contractual obligation to make payment upon receiving services.

• The stock currently trades at an attractive CY23F PE of 20.7x, 33% below its 5-year average of 31x. We like Dialog Group for its resilient non-cyclical tank terminal income with improving occupancy rates and spot storage rates, recurring maintenance-based operations and enormous growth potential from PDT Phase 3 expansions.

Source: AmInvest Research - 10 Mar 2023