- We maintain our HOLD call on Dialog Group (Dialog) with a lower sum-of-parts value of RM1.52/share (vs. RM1.64/share previously), which implies a CY15F PE of 28x, comparable with its 3-year average of 30x.

- Dialog announced last week that it had entered into an agreement with Petronas Gas (PGas) for the development liquefied natural gas (LNG) regasification facilities in Pengerang. The total estimated project cost of the LNG project is at circa RM2.7bil.

- Dialog will have an effective 25% stake in the Pengerang LNG project, PGas with 65% and the State of Johor with the remaining 10%.

- Our lower fair value of RM1.56/share stems from the lower project cost of RM2.7bil and lower stake of 25%. We had previously assumed a 40% stake in RM4bil LNG storage facilities with a capacity of up to 720,000 cu metre.

- The facilities will comprise a regasification plant and two units of LNG storage tanks with a capacity of 200,000 cu metre each. The regasification terminal will have an initial send-out capacity of 3.5mil tonnes per annum (approx. 490mil MMscfd).

- The construction of the facilities is expected to commence in 2QCY15 and would take 2.5 years to complete. We are positive on this development as it would provide Dialog with an additional stream of income in the medium term, with the commencement of operations in 4QCY17.

- In subsequent quarters, we expect earnings growth to come from the Phase 1 of Pengerang Independent Terminals (PIT) as the construction of the entire 1.3mil cu metre tank terminal operations is nearing completion (Phases 1A and 1B have commenced operations, while Phase 1C is targeted to commence in 1QCY15).

- With the approval of the final investment decision of the LNG facilities, we expect the construction plans for phases 2 and 3 of PIT to be expedited over the next few months. The construction of the next phase is targeted to be completed by mid-2018, where the bulk of the capacity will be catered to the Refinery and Petrochemical Integrated Development (RAPID).

- Our SOP has already incorporated the potential DCF accretion (assuming an average 40% equity stake) from the three phases of PIT, which covers 500 acres of reclaimed land.

- The stock currently trades at an FY16F PE of 27x, against its 3-year average of 30x.

Source: AmeSecurities