- We maintain our HOLD call on Dialog Group (Dialog), with an unchanged sum-of-parts (SOP) fair value of RM3.40/share, which implies a CY14F PE of 28x – a 40% premium to its 3-year average.

- The Star reported today that Pengerang Independent Terminals S/B (PIT) welcomed its first shipment at the petroleum and crude storage facility from the vessel MT Vinalines Glory on Saturday, marking the start of the initial stages of the terminal’s oil storage operations.

- This is within the group’s revised start-up schedule in 2Q2014 (from an earlier expectation at end-2013) for PIT’s Phase 1, in which Dialog has an effective equity stake of 46%, Vopak 44% and Johor state 10%.

- Recall that the 150-acre reclaimed PIT Phase 1, which cost up to RM2bil, has a total capacity of 1.3mil m3. But this whole capacity has not fully commenced operations yet as the commencement of the storage tanks will be carried out in stages as Phase 1 is progressively completed.

- Phase 1A (with a storage capacity of 426,000m3) was scheduled for completion by end-1Q2014, Phase 1B (426,000m3) by end-June 2014, and Phase 1C (426,000m3) by end-December 2014.

- Recall that PIT involves a harbour port, a 1.9km jetty, a 1.1km wharf and 6 vessel berths which can handle ultra large crude carriers at water depths of 26 metres.

- Now that Petronas’ final investment decision for the Refinery and Petrochemical Integrated Development project has been approved, we expect the construction plans for phases 2 and 3 to be expedited over the next few months, depending on negotiations with its customers.

- Our SOP has already incorporated the potential DCF accretion (assuming an average 30% equity stake) from the 3 phases of PIT, which covers 500 acres of reclaimed land (See Table 1).

- But PIT could also involve additional joint-ventures for RM4bil liquefied natural gas (LNG) storage facilities with a capacity of up to 720,000m3. Assuming an effective stake of 30% in the LNG facility, it could raise our SOP by 29 sen from RM3.40/share currently to RM3.69/share.

- We maintain our SOP for now as negotiations with other stakeholders are still in progress, while Petronas Gas has still not reached its final investment decision for its regassification plant in Pengerang.

- The stock trades at a fair CY15F PE of 28x - a 40% premium above its 3-year average of 20x.

Source: AmeSecurities