News Yesterday, Dialog Group (DIALOG) proposed 1-for-1bonus issue and 1-for-125 special share dividend.
The proposed special share dividend will be distributed to entitled shareholders before the proposed bonus issue.
The entitlement date will be determined later, pending approval, including Bursa and shareholders.
The exercise is expected to be completed by 3Q14.
Comments This proposal is a positive as it improves the stock trading liquidity and rewards shareholders. Moreover, the enlarged share capital will better reflect DIALOG current scale of operations, business growth, earnings and will increase the capital base (share capital over market capitalization) to above 5% from the current 2.8%.
Assuming the maximum scenario, the proposed special share dividend and bonus issue entail up to 236.5m and 2,667.8m additional new shares. It will also result in a 54.9% dilution to FY15-16 EPS. However, there is no impact to its valuations.
Outlook Construction works for Phase 1A Pengerang CTF has already completed in 1QCY14. Phase 1B and Phase 1C are expected to be completed in mid-2014 and end-2014.
Phase 2 should be ‘good-to-go’ given that the Final Investment Decision (FID) for Petronas’ RAPID project has been approved. For now, the finalised tank terminal capacity and equity stake is pending. We have already included an additional 0.72m cbm of storage capacity into our sum-of-parts forecasts from FY17 onwards.
The Balai RSC has apparently hit first-oil and is due for Extended Well Testing (EWT) programme by 1QCY14.
We have only expected earnings contributions from FY17, and as such, any project acceleration would be further earnings catalyst for DIALOG.
Forecast We maintain our earnings forecasts for now pending the completion of the corporate exercises.
Rating Downgrade call to Market Perform given the limited upside from current share price.
Valuation Our CY15 SoP-based valuation TP is RM3.92.
Ex-special share dividend and bonus issue, under maximum scenario (post ESOS and warrant conversion), our TP could be RM1.77.
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
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