Investment Highlights

• We retain BUY on Dialog with an unchanged sum-ofparts (SOP) based fair value of RM3.36/share. This implies a CY24F PE of 32x, broadly at par to its 5-year average of 31x and reflects a neutral ESG rating of 3-star.

• We visited the group’s Pengerang Deepwater Terminal (PDT) operation in Johor last week and were given a tour around the marine control operations centre and Dialog Terminals Pengerang 5 (PT5). Key takeaways and salient updates from the site visit are as follows:
  • The marine control operations centre is responsible for managing and coordinating the movement of all vessels within the PDT’s marine area to ensure safe and efficient operations. It faces the southern part of Batam Island and operates on a 24-hour basis.
  • Upon receiving notification from its agents and customer service, the operations personnel will call in the vessel for docking. The vessel will be assisted by tugboat operators, which are owned by Johor Port and whose services are borne by the clients. Depending on the volume to be transferred, a vessel may take up to 2- 3 days for the transfer of products.
  • PT5 contains 2 tank pits (Exhibit 1): (a) Tank Pit 1 contains 8 tanks with a total storage capacity of 160k cubic meters (m3); and (b) Tank Pit 2 contains 9 tanks with a total storage capacity of 270k m3. They share common tankage facilities and infrastructure, particularly 7 loading pumps. Products are received at a nearby jetty and can cater for up to 3 vessels at any time. The operations of PT5 are mostly operated at a central control room located at the entrance of the plant.
  • We continue to have limited visibility on expansion plans for PDT Phase 3. The management updated that Dialog is still in discussions with potential clients and positive on the recent 2024 budget announcement. Recall, the government plans to introduce tax incentive packages such as special tax rates or investment tax allowance for chemical and petrochemical developments in the proposed Pengerang Integrated Petroleum Complex (PIPC).
  • We believe prospective clients for Dialog may include Singapore’s ChemOne and China’s Rongsheng Petrochemical Co. Notably, management aspires for PDT Phase 3 to involve an integrated component which will allow for inter-transfer arrangements between clients.
  • We gather that elevated terminal utilisation rate is currently at over 90% levels (vs. pre-pandemic 70%-80%) primarily due to sustained demand for fossil fuels, lack of global capacity and concerns over energy security, stemming from geopolitical uncertainties. This also supports high independent terminal tank storage rates, which are currently at S$6/m3 vs. a pre-pandemic S$4/m3-S$5/m3. We expect to see these maintained in the near future and Dialog to benefit as uncertainties continue to plague the oil and gas sector.
  • Though we believe the group’s recent venture into the malic acid plant in Pahang is opportunistic given Petronas Chemicals’ own decision on 30 June 2023 to acquire a nearby 113 kilo-tonnes per annum (ktpa) maleic anhydride (MAn) plant, which will be used as the main source of feedstock, management notes that the investment is actually a culmination of a multi-year effort with the specialty chemicals team set-up 3 years ago. Over the long term, Dialog aspires to grow the downstream segment to contribute more meaningfully. Meanwhile, the group is currently in the midst of sourcing buyers for the plant’s production. Dialog is open towards different arrangements, including a long-term supply agreement or at spot.
• Dialog currently trades at an attractive CY24F PE of 20x, well below its 5-year mean of 31x. We believe Dialog deserves above-peer premium valuations given its long-term recurring cash flow generating businesses which are further underpinned by the Pengerang development’s multi-year value re-rating bonanza and low net gearing level.

Source: AmInvest Research - 23 Oct 2023