Dialog Group; Hold; RM3.02
Price Target: RM2.90; DLG MK

Dialog announced that it has signed a Memorandum of Understanding (MoU) with Concord Energy Pte. Ltd. to conduct a feasibility study for the proposed development of a dedicated crude oil and petroleum product storage terminal in Pengerang, Johor which is likely to take a year to complete.  

The proposed development will come with a dedicated and exclusive storage capacity of up to 2m m3  and deepwater jetty facilities to enable Very Large Crude Carriers (VLCC) access for Concord Energy. The project will be carried out in stages with the first phase having up to 1m m3  storage capacity.  

The arrangement of having Concord Energy as the exclusive partner for the storage terminal is similar to its Tanjung Langsat terminal where Trafigura is the exclusive user. The Singapore-based Concord Energy is one of the leading energy trading companies in the region, with production, storage, refining and other interests streching from the Middle East to Asia. Nevertheless, we believe that the first phase will only come on-stream by end-2016 at the earliest, subject to commercial viability.

Meanwhile, the first phase of the Pengerang terminal is scheduled to be operational by 1H14 with an initial storage capacity of 432,000 m3 . Construction will be carried out progressively until the storage capacity reaches 1.3m m3  by end-2014.  

We maintain our Hold rating with DCF-derived TP of RM2.90 on Dialog. While we like Dialog for its long-term recurring income from the tank terminal business and well-planned upstream ventures, medium term upside is capped with the stock trading at 34x FY14 earnings. 

Source: HwangDBS Research - 22 Nov 2013