Dialog has entered into a Shareholders Agreement with Petronas Gas (PGas)  for  the  formation  of  a  JV  Company  (JVCo)  to  undertake  the development  of  LNG  regasification  facilities  at  Pengerang,  Johor.  The facilities comprising of a regasification unit and two units of 200,000 m3 LNG  storage  tanks  with  an  initial  send  out  capacity  of  3.5mtpa (approximately 490 MMscfd) of natural gas. The total estimated project cost  is  approximately  RM2.7bn.  Petronas  Gas  will  own  65%  of  the JVCo, Dialog will hold 25% while the Johor State Secretary will hold the remaining 10%.

In  a  separate  announcement,  Petronas  Gas  has  awarded  the engineering,  procurement,  construction  and  commissioning  (EPCC) contract  for  the  regasification  terminal  (RGT)  to  Samsung  C&T Corporation,  in  consortium  with  Whessoe  Engineering  Ltd,  ScienceTech Solutions Sdn Bhd and Samsung C&T (KL) Sdn Bhd for a value of US$486.7m  (RM1.5bn).  The  RGT  is  expected  to  be  operational  by 4Q17. (Source: Bursa Malaysia)

Comment:  (Dialog):  We  are  positive  on  the  Petronas  Gas  -  Dialog partnership  in  the  development  of  Pengerang  regasification  terminal. The  dedicated  terminal  will  be  built  to  supply  natural  gas  to  the Pengerang  Integrated  Complex  for  their  fuel  requirement  and  the  gas can also be injected into the Peninsular Gas Utilisation pipeline system. As such, the offtake risk is significantly lower than the development of an  independent  terminal,  which  was  proposed  by  the  Dialog-Vopak consortium under its original plan in Sep12.

Details  on  the  project  are  scarce.  Assuming  a  10%  project  IRR,  7% WACC  and  a  5-year  development  period,  Dialog’s  25%-stake  in  the RM2.7bn project could enhance its SOTP valuation by 4 sen. Unlike its earlier  Pengerang  Independent  Deepwater  Terminal  development,  we believe that Dialog will not be actively involved in the construction of the regasification terminal, given that Samsung C&T had been appointed as the  main  contractor.  We  maintain our  earnings  forecast  and  REDUCE rating for now pending further update from the management. Dialog is scheduled to release its 1QFY06/15 results on 18 November.

Comment  (PGas):  The  news  of  the  RGT  in  Johor  has  been  widely anticipated  by  the  market  and  is  positive  for  future  revenue  growth prospects.  However,  our  RNAV-based  12-month  PT  of  RM20.20  has already factored in the potential earnings contribution of the Johor RGT, which will mostly cater to the RAPID project. Besides that, we make no changes  to  our  earnings  forecast  for  now  as  the  Johor  RGT  will  only start contributing to PGas’ earnings in FY18. Maintain REDUCE rating as the stock currently trades at 23x FY15 PER and therefore we believe the growth prospects of PGas are largely priced in at this juncture.

Source: Affin Hwang Capital Research - 17 Nov 2014