Dialog, in consortium with Technip (30:70) has secured a RM724m job for the provision of EPCC of a new single-train Melamine plant, including of modification of existing plant and utilities, with a construction period of about 17 to 22 months, ending 2HCY24. We are slightly positive on this development as we expect it to be earnings accretive, of about ~RM21.7m billed over a period of c.20 months, based on our assumption of a 10% net margin. This would enhance Dialog’s FY22-24F earnings by less than c.1.5% annually (RM5.4m for FY22, RM10.8m for FY23 and RM5.4m for FY24), based on our earnings forecast, which is somewhat negligible. No changes to our estimates. We maintain BUY with an unchanged TP of RM3.38.

NEWSBREAK

Dialog announced that it has secured a RM724m EPCC job of a new single-train Melamine plant, including of modification of existing plant and utilities. The project duration is expected to be about 17-22 months, ending 2HCY24.

HLIB’s VIEW

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

(1) The client for this project is Petronas Chemicals (BUY, TP: RM10.90).

(2) Dialog’s interest in the consortium is expected to be 30% while Technip holds the remaining 70%.

(3) We expect the job to be earnings accretive of about ~RM21.7m billed over a period of c.20 months. This is based on our assumption of a 10% net profit margin. It would then enhance Dialog’s FY22-24F earnings by less than c.1.5% annually (RM5.4m for FY22, RM10.8m for FY23 and RM5.4m for FY24), 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 make no changes to our earnings estimates.

Maintain BUY, unchanged TP of RM3.38. Our TP of RM3.38 implies an attractive 23% upside to current share price. Valuation wise, Dialog is currently trading at FY23F P/E of 25x, 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 - 14 Feb 2022