Yesterday, Dialog announced that it has entered into a Production Sharing Contract (PSC) with PETRONAS and Petroleum Sarawak Berhad (PETROS) where Dialog will take on a 70% participating interest including the operatorship of the Baram Junior Cluster Small Field Asset. We estimate the capex allocation for the development of this field to hover at about USD50m. We estimate this Baram Junior Cluster asset to produce its first oil in 2027. We are positive on this development as the group ventures into more options to sustain/increase its crude oil production. This will help Dialog increase its sources of sustainable and recurring income in the future, apart from its midstream tank terminal business. We maintain BUY on Dialog with an unchanged SOP-derived TP of RM3.04/share.

NEWSBREAK

Yesterday, Dialog announced that it has entered into a Production Sharing Contract (PSC) with PETRONAS and Petroleum Sarawak Berhad (PETROS) where Dialog will take on a 70% participating interest including the operatorship of the Baram Junior Cluster Small Field Asset.

HLIB’s VIEW

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

1. Dialog’s participation in this PSC will commence for a duration of up to 14 years with estimates as follows: (i) 2 year pre-development phase; (ii) 2 year development phase; and (iii) 10 year production phase or up till the expiry of the contract, whichever is earlier.
2. The resource/capex allocation will be refined over the next few months as the asset evaluation is completed. However, we estimate the capex allocation for the development of this field to hover at about USD50m.
3. As it is only at its preliminary phase, we are not able to estimate the brownfield’s daily/annual production as of yet. We await more clarity from the group in the future. As of now, we gather that the preliminary works will not be revenue or earnings accretive.
4. We estimate this Baram Junior Cluster asset to produce its first oil in 2027.
5. We are positive on this development as the group ventures into more options to sustain/increase its crude oil production. This will help Dialog increase its sources of sustainable and recurring income in the future, apart from its midstream tank terminal business.

Forecast. Unchanged.

Maintain BUY – TP: RM3.04/share. We maintain BUY on Dialog with an unchanged SOP-derived TP of RM3.04/share, which implies a decent 18% upside to current share price. Valuation wise, Dialog is currently trading at FY24f P/E of 27x, which is at about a 15% 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 - 18 Jan 2023