Dialog has secured a RM248.0m job for the provision of engineering, procurement, construction and commissioning (EPCC) of a Titanium Nitrile Butadiene Latex project for Pengerang Integrated Complex (PIC), with a construction period of about 18 months, ending 2QCY23. We are slightly positive on this development as we expect it to be earnings accretive , of about ~RM25.0m billed over a period of 18 months, based on our assumption of a 10% net margin. This would enhance Dialog’s FY22-23F earnings by ~2% annually (RM12.5m each year), based on our forecast – which is somewhat negligible. At this juncture, we make no changes to our estimates and maintain BUY with an unchanged TP of RM3.45.

NEWSBREAK

Dialog announced that it has secured a RM248.0m EPCC job of a Titanium Nitrile Butadiene Latex project for Pengerang Integrated Complex (PIC) in Johor. The project is expected to be about 18 months, ending 2QCY23.

HLIB’s VIEW

Key Highlights. We Note a Few Key Salient Points, as Below:

1. The client for this project is Petronas Refinery & Petrochemical Corporation Utilities & Facilities (PRPCUF) – which is an indirect subsidiary of PETRONAS. PRPCUF is also involved in the operations of PIC’s Solid Product Jetty in Pengerang, Johor.
2. Dialog Does Not Own This Project and Will Only Provide EPCC Service for This Job.
3. We expect the job to be earnings accretive of about ~RM25.0m billed over a period of 18 months. This is based on our assumption of a 10% net profit margin. It would then enhance Dialog’s FY22-23F earnings by c.2% annually (RM12.5m each year), based on our forecast – which is somewhat negligible.
4. With That, We Are SLIGHTLY POSITIVE on This Development.

Outlook. Dialog will continue to be one of the key beneficiaries of Pengerang’s development due to its exposure in tank terminals, EPCC and maintenance services. In addition to Dialog’s Terminals Langsat 1 and 2 with a total capacity of 650,000 m3 , Langsat 3 has commenced full operations for its 120,000 m3 storage facility in January 2020. The construction works of the 430,000m³ storage capacity under Phase 3A of Pengerang Deepwater Terminals (PDT) was completed in March 2021 whilst, the 85,000m³ capacity expansion of Langsat 3 is slated for full completion by the end of CY21.

With the imminent ease of international travel restrictions in CY22, we see Dialog as a beneficiary as PDT will be able to welcome foreign clients and investors, potentially boosting Dialog’s downstream EPCC and midstream take-or-pay tank terminals business.

Forecast. No Changes to Our Estimates.

Maintain BUY – unchanged TP of RM3.45. We maintain our SOP-derived TP of RM3.45, implying a 20% upside. Valuation wise, Dialog is currently trading at FY23F P/E of 26x, which is at about 20% discount to its pre-pandemic mean of 32x in 2019. We continue to like Dialog for its recurring income type of business model and we deem it as one of the only listed secular growth stock in the local oil and gas space.

Source: Hong Leong Investment Bank Research - 5 Nov 2021