- 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. Upon completion of its proposed bonus issue, our fair value will drop to RM1.70/share.
- Dialog has announced a 1-for-1 bonus issue and a distribution of 21.2mil treasury shares on a 1-for-125 basis for existing shareholders, which is expected to be completed in 3Q2014.
- This represents the group’s 7th bonus issue in celebrating Dialog’s 30 years of incorporation and 18 years after its IPO.
- Including the exercise of 20mil ESOS and 195mil outstanding warrants 2012/2017, the bonus and treasury share distribution will expand Dialog’s share base by 2.2x from 2.4bil to 5.3bil.
- Dialog has acquired 22.8mil treasury shares for RM24.8mil or RM1.09/share, based on its FY13 annual report.
- The free share distribution will only yield an incremental 0.8% to Dialog’s current dividend yield of 0.8%.
- We maintain FY14F-FY16F EPS as this corporate development does not change Dialog’s earnings prospects.
- 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 Pengerang Independent Terminals (PIT), which covers 500 acres of reclaimed land.
- 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
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