- We maintain our BUY recommendation on Dialog Group with an unchanged fair value of RM1.95/share, based on our sum-of-parts valuations, which implies an FY16F PE of 34x.

- Dialog’s Pengerang Deepwater Terminal (PDT) has received its first very large crude carrier (VLCC) yesterday. The 333-metre long Liberian-registered vessel arrived from the Middle East to discharge its crude oil cargo at Phase 1 of PDT. To date, PDT has received more than 100 shipments since its commencement in April 2014.

- Management had previously indicated that demand for its tank storage facility remains strong. Local dailies have earlier reported that BP has leased more than half the capacity of Phase 1A, while Total has taken up the remainder. This underscores the strong interest from oil companies to capitalise on the current oil price level, where cheap oil can be bought and held in tanks to be sold later at higher prices in the future.

- The RM2bil Pengerang Phase 1 with a total capacity of 1.3mil m3 is near full completion with final Phase 1C due for commencement in the current quarter. The group will next focus on Phase 2, a 2.1mil m3 dedicated industrial tank terminal catered for the RAPID complex, which is due by mid-2018. The total cost for SPV2 is estimated to be RM6.3bil, of which an EPCC contract worth RM5.5bil was awarded to Dialog. The LNG regasification plant and storage tanks will concurrently be completed by end-2017.

- Dialog’s tank terminal operations will simultaneously be supported by its Kertih and Tg Langsat tankage facilities, which will underpin its stable and recurring income. Management guides that the operations in Tanjung Langsat are beginning to contribute more significantly, after having gone through a gestation period over the last four to five years.

- The stock now trades at an FY16F PE of 27x.

Source: AmeSecurities