News  Yesterday, Dialog Group (DIALOG) announced that it has signed a MoU with Concord Energy to conduct a feasibility study for a proposed dedicated crude oil and petroleum product storage terminal in Pengerang, Johor.

 The feasibility study, which will take approximately one year to complete, will look into the proposed development of a dedicated and exclusive storage capacity of up to 2m m3 and deepwater jetty facilities to enable Very Large Crude Carriers access for Concord Energy.

 The proposed development will be completed in stages with an initial planned capacity for up to 1m m3.

Comments Management guided that the Concord Energy capacity will not be part of Phase 1 (expected to be fully-completed by end 2014) or Phase 2 of the Pengerang Deepwater Petroleum Terminal (PDPT) project. As such, it is very likely that Concord Energy will have its own separate equity structure; post the feasibility study; as this will be a dedicated terminal.

 We are positive on the announcement as it symbolises that there is ongoing interest in PDPT, which suffered some uncertainties with the delay of the RAPID project (announced in recent times).

Outlook  Construction works for Phase 1A Pengerang CTF is ongoing with tentative completion by 1QCY14. Phase 1B and Phase 1C are expected to be completed in mid-2014 and end-2014. Phase 2 has yet to start despite the near completion of land reclamation works. Its commencement will depend on the outcome of the Final Investment Decision (FID) for Petronas’ RAPID project (which completion is reportedly delayed to late-2017/early-2018).

 The Balai RSC has apparently already hit first-oil and the consortium aims to submit a Field Development Plan (FDP) and move towards Final Investment Decision (FID) by the end of 2013. We believe earnings contributions at the earliest are likely to be in 2015-2016.

Forecast  We are keeping our earnings forecasts pending further information on this MoU.

 We highlight that our fair value has only imputed Phase 1 of the PDPT; hence any further confirmation on capacity additions will be positive catalysts to our target price on the stock.

Rating Maintain OUTPERFORM

Valuation  We maintain our CY14 SOP-based fair value of RM3.28/share.

Risks to Our Call (i) Delays in its in-house EPCC jobs and projects

 (ii) New capex intensive projects which will be a drain on cashflows.

Source: Kenanga