Investment Highlights

• We maintain BUY on Dialog with a lower sum-of-parts based fair value (FV) of RM2.95/share (from RM2.97 previously) which implies a 1-year forward PE of 27x - 8% above its 10 year average of 25x . Our fair value also reflects neutral 3-star ESG rating (Exhibit 4).

• The adjustment to FV is to account for the disposal of th group’s 60%-equity stake in the Jubail Supply Base Accordingly, we tweak our FY25F-FY27F earnings by 1.5% 2.0%.

• The group announced that it is divesting its entire 60%-equit stake in Jubail Supply Base to its partner, Sedres Trading & Maritime Services Co Ltd (Sedres). For reference, Sedres is a Saudi Arabian maritime logistics company headquartered in Jubail. Completion is expected by 4QFY25.

• The disposal price tag amounts to SAR47.5mil (RM55mil consisting of: (a) sale consideration of SAR3mil (RM3.5mil and (b) dividends of SAR44.5mil (RM51.5mil). Proceeds from the sale will be towards working capital purposes.

• We are largely neutral on the transaction. Though the segment has seen stronger earnings momentum in recen quarters, the flow of works at the supply base is expected to see a gradual decline following Saudi Aramco’s recent cuts to its 4-year capex target which will involve deferment o expansion works for major offshore oilfields such a Safaniyah and Manifa. According to management, this is expected to lead to less demand for heavy lifting services tha is provided at Jubail Supply Base.

• Additionally, we believe timing of the disposal is right given the Saudi government’s push to localise the energy secto (including its supply chain) to 70%, spearheaded by Saud Aramco and in support of Saudi Vision 2030. Recall that this is the second disposal made to Sedres, with the first in 202 for the group’s Dialog Services Saudi Arabia (DSSA), which i involved in the provision of specialist technical services fo SAR6.6mil (RM7.7mil).

• We believe the purchase consideration is fair based on 1x price-to-book (PBV) against its net asset value of SAR77.6m as at 30 June 2024. This is consistent with the disposal basis for DSSA. Note that the sale is expected to result in a gain on disposal of SAR0.9mil (RM1mil).

• We see upside potential to Dialog which trades at compelling FY26PE of 21x, still below its 10-year mean of 25x which is unjustified given its long-term recurring cash flow generating businesses and low net gearing levels.

Source: AmInvest Research - 28 Aug 2024