Dialog has secured a RM360m job for the provision of engineering, procurement, construction and commissioning (EPCC) of a new booster compressor station with associated equipment and facilities at Mengkibol, Kluang, Johor, with a construction period of about 26 to 28 months, ending 1QCY24. We are slightly positive on this development as we expect it to be earnings accretive, of about ~RM36.0m billed over a period of 28 months, based on our assumption of a 10% net margin. This would enhance Dialog’s FY22-24F earnings by 2% annually (RM12m each year), based on our earnings forecast – which is somewhat negligible. At this juncture, we make no changes to our estimates and maintain BUY with an unchanged TP of RM3.38.

NEWSBREAK

Dialog announced that it has secured a RM360m EPCC job of a new booster compressor station with associated equipment and facilities at Mengkibol, Kluang, Johor. The scope includes some modification scope for the existing compressors at Segamat Compressor Station and modification to the existing facilities. The project duration is expected to be about 26-28 months, ending 1QCY24.

HLIB’s VIEW

Key highlights. We note a few key salient points, as below:

(1) The client for this project is Petronas Gas (BUY, TP: RM19.00).

(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 ~RM36.0m billed over a period of 28 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 (RM12m each year), based on our earnings forecast, which is somewhat negligible.

(4) With that, we are only 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 Jan 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. We Maintain Our Earnings Estimates.

Maintain BUY, unchanged TP of RM3.38. Our TP of RM3.38 implies an attractive 39% upside to current share price. Valuation wise, Dialog is currently trading at FY23F P/E of 22x, which is at about 30% 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 - 16 Dec 2021