THE BUZZ Dialog Group (Dialog) announced on Bursa Malaysia yesterday that its wholly-owned subsidiary, Dialog D&P, has entered into a subscription and shareholders' agreement with Asia Energy Services (AES), a wholly-owned subsidiary of Haliburton International, to subscribe for 50% equity in Haliburton Bayan Petroleum (HBP) to jointly manage an oilfield services contract.
OUR TAKE
Positive on latest venture. HBP had earlier entered into an oilfield services contract as an independent technical service contractor with Petronas Carigali to provide contractor services to enhance the recoverable reserves from the Bayan Field, located offshore Bintulu in Sarawak. The project value, estimated at some USD1.2bn (RM3.7bn), will stretch over 24 years. We opine that the latest move is positive for Dialog as this reflects Petronas' confidence in Dialog's capabilities in undertaking upstream projects.
Roping in a solid partner. We believe that the Dialog-Haliburton tie-up is a solid one as Dialog is an established oil and gas service provider in Malaysia which boasts of a solid balance sheet while Haliburton is a seasoned provider of products and services to the energy industry with expertise in the upstream oil and gas industry. This partnership could potentially be a catalyst for Dialog to secure more oil and gas field rejuvenation jobs in the future as it beefs up its technical expertise. This would also enhance and sustain the group's future recurring income as well as reinforce its position as a leading integrated technical services provider.
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Raising FYE14 estimates by 6.6%. Incorporating potential contributions from Dialog's new upstream business, we are raising FYE14 our top-line and bottom-line forecasts by 7.9% to RM1.9bn and 6.6% to RM280.4m respectively (assuming net margins of 10-15% from its upstream venture).
Maintain BUY. As Dialog recently released its 2012 annual report, we have retrospectively updated the numbers into our financial model. Accordingly, we are revising higher our fair value on the counter from RM3.16 to RM3.45 as we roll over our numbers to FY14 earnings based on a sum-of-parts valuation. We are, at the same time, excluding our sum-of-parts valuation for Dialog's Langsat Terminal 3 project as we understand management will focus on other projects moving forward. Dialog remains as our favourite stock in OSK's oil and gas universe due to the group's strong cash generation business, fortified by a solid balance sheet.