We remain positive on DIALOG’s long-term recurring business model after our visit to Pengerang early of the week. Its Phase 1, independent terminal with a storage capacity of 1.3m m³ have been fully leased out to international oil majors and traders. There is a vacant land in which DIALOG is considering to expand with a projection of additional capacity of 1m m³. On the other hand, the phase 2 project, construction of a dedicated industrial terminal with storage capacity of 2.1m m³ for RAPID Complex and deepwater jetty facility coupled with its LNG terminal are still on track. With the inhouse projects and newly acquired external projects, the fabrication yard is currently keeping utilisation above 60%. Maintain MARKET PERFORM with an unchanged TP of RM1.71/SoP share.

Phase 1 fully leased out with potential expansion. On Monday, we visited DIALOG’s Pengerang site to get more updates on its various phases of the tank terminal facilities. Currently, the 7 crude oil tanks and 50 petroleum products tanks totally up to 1.3m m³ have been fully leased out to international oil majors and traders. In addition, there is extra land next to the terminals in which DIALOG is able to expand the storage capacity by another 1m m³. We believe it will take at least 18 months to ramp up the additional storage facility. As the expansion plan has not firmed yet, we do not include the additional space into our forecast.

Development of phase 2 is on full force. We came to understand that the Phase 2 project including a dedicated industrial terminal with storage capacity of 2.1m m³ and a deepwater jetty facility is on full stream. DIALOG aims to complete and commission the terminals for RAPID by 2019 while the completion of deepwater jetty facility is targeted at an earlier deadline of July 2017. This is to commensurate the expected commencement of operation of its LNG terminals, which is situated next to the Phase 2 terminal. As of 3 Nov 2015, 312 vessels have been berthed at the Pengerang Deepwater Terminal and the numbers are expected to increase with the completion of the second deepwater jetty facility.

Fabrication yard’s utilisation stays above 60%. DIALOG’s fabrication division is expected to be busy following award of EPCC project on Pengerang phase 2. Furthermore, the company set up an extra fabrication facility in Pengerang in order to seize the growth of RAPID project in the next few years. Apart from the on-going Pengerang Phase 2 project, the yard is working on fabrication of moulded bullet tanks and large pressure vessels for Toyo-Thai Corp Ltd. This project is meant for RAPID project with an estimated project value of USD51m. We reckon the fabrication yard to stay occupied in the near medium term benefiting from its strategic position to RAPID site.

Maintain MARKET PERFORM. DIALOG continues to develop its matured fields of D35/D21/J4 to increase oil production. However, the contribution from upstream coupled with its specialist products & services are expected to remain weak in the medium-term amid a slowdown in the O&G sector. Overall, we believe that the group is on track to build on its long-term recurring income generating asset base with multiple tank terminals put in place to capitalize on the potential growth in Malaysia’s downstream sector. Hence, we are maintaining our MARKET PERFORM call on DIALOG with an unchanged target price of RM1.71 based on SOP valuation. 

Source: Kenanga Research - 17 Dec 2015