- We maintain our HOLD call on Dialog Group (Dialog) with an ex-bonus sum-of-parts fair value of RM1.98/share (from an earlier RM4.05/share), which implies a CY15F PE of 30x, comparable with its 3-year average. The 1-for-1 bonus issue went ex on the 18th this month.

- Petroliam Nasional (Petronas) announced that the Bentara field in the Balai Cluster risk service contract (RSC), off Sarawak has achieved its first oil production on 25 May this year. The Bentara field, expected to produce over 1,000 barrels of oil per day, is the second field in the Balai cluster to achieve this stage after the Balai field in November 2013.

- The development area is located 100-130 km northeast of Bintulu. The project facilities consist of four light-weight Tarpon Guyed Caisson Well Head Platforms and an early production vessel called Balai Mutiara, with on board storage capacity of 50,000 barrels, well testing facilities and 40-pax accommodation.

- Recall that Dialog has a 32% effective stake in the Balai RSC, with Australia-listed Roc Oil having 48% and Petronas Carigali 20%. The RSC covers four fields – Balai, Bentara, Spaoh and West Acis (See chart 1).

- This positive development brightens the group’s longer term earnings prospects, but we expect the impact to nearterm profits to be minimal given that the consortium will likely need to cover its initial start-up costs.

- Likewise for Dialog’s 50:50 joint venture with Halliburton in the nearby Bayan enhanced oil recovery project, in which earnings visibility remains unclear at this stage as any revenue contribution will be based on significant production volume increases. Hence, we maintain FY14F-FY16F earnings for now.

- For now, the main earnings catalysts for the group stems from its Pengerang Independent Terminal (PIT) project, as Dialog’s executive chairman Tan Sri Dr Ngau Boon Keat has said that its investments could reach RM16bil over the next 15 years.

- The feasibility study for the 720,000 cu metre liquefied natural gas (LNG) facility is expected to be completed over the next 6-12 months, in which other stake holders such as Petronas Gas could potentially emerge as investors.

- While Petronas has already reached final investment decision (FID) for its Refinery and Petrochemical Integrated Development in Pengerang, Petronas Gas is expected to reach its own FID for its participation in the LNG facility in September this year, which will facilitate the commencement of Dialog’s PIT Phase 2 construction.

- The stock currently trades at a fair FY15F PE of 32x, near its 3-year average of 30x.

Source: AmeSecurities