Increases Stake in Langsat Tank Terminal

Dialog announced that it has entered into a share purchase agreement with MISC to acquire its 45% interest in the jointly controlled Centralised Terminals Sdn Bhd (CTSB). Post acquisition, Dialog’s effective stake in Langsat tank terminal project would increase from 44% to 80%, hence resulting in a change of accounting recognition from associate level to consolidation under revenue line. We tweaked our FY18-20E earnings marginally higher by 1%-3% to reflect the changes. We maintain our HOLD call but revised our TP higher to RM2.15 (from RM2.10 previously).

Acquisition Details

Dialog announced that it will acquire a 45% interest in CTSB owned by MISC, increasing its effective stake from 44% to 80% for a purchase consideration of RM137m. Post acquisition, Dialog will consolidate CTSB’s revenue and earnings as opposed to recognition of earnings at the associate line just prior. In addition, Dialog will take over MISC outstanding loan to CTSB which amounts to RM56m. The proposed acquisition is expected to be completed within one month. We consider the valuation for the acquisition to be fair, which is at 17.7x FY17 PE, based on our forecast. To recap, the Langsat tank terminal has been in operations since 2009 and currently has a total storage capacity of 647,000 cm³. There are no changes in the other 20% ownership which remains with Trafigura, which is one of the largest independent oil traders.

Revised Earnings to Reflect the Consolidation

Together with the assumption that the deal will be funded by a 60:40 debt and equity mix, we tweaked our FY18-20E marginally higher by 1%-3% to reflect the changes in accounting recognition for Langsat tank terminal (from associate level to consolidation under revenue line). We view this deal positively as this is in line with Dialog business strategy to further expand its current capacity with the expansion of Pengerang Deepwater Terminal (PDT) Phase 1 and 3.

TP Lifted to RM2.15; Maintain HOLD

We maintain our HOLD call with a higher TP of RM2.15 (from RM2.10) based on SOTP valuation. Key upside risk includes new EPCC contract wins. Downside risks include any unforeseen delay in PDT Phase 2 EPCC works and operational hiccup in existing tank terminal business.

Source: Affin Hwang Research - 26 Sept 2017