DIALOG has acquired an additional 20% stake in Halliburton Bayan for USD6.6m, bringing its total stake to 95%. Given the minimal financial impact, we are neutral towards the acquisition, although we acknowledge the slight earnings and valuation accretions. The acquisition is also in line with DIALOG’s overall strategy of balancing its business portfolio between upstream, midstream and downstream. Maintain OUTPERFORM with unchanged TP of RM4.15.

Additional 20% stake in Halliburton Bayan. DIALOG has entered into a supplemental sales purchase agreement with Asia Energy Services Sdn Bhd to acquire a further 20% equity interest in Halliburton Bayan Petroleum Sdn Bhd for a purchase consideration of USD6.576m (or ~RM27.2m). Post-acquisition, Halliburton Bayan Petroleum would become a 95%-owned subsidiary of DIALOG.

Company background: Halliburton Bayan Petroleum is the independent technical service contractor for the oilfield services contract with Petronas Carigali Sdn Bhd, to provide services required to enhance the recoverable reserves from the Bayan field, via services such as production enhancement activities, oil development and prospect appraisal. The Bayan field is located offshore Bintulu, Sarawak, with a term of 24 years (up to 2036).

Our take on the acquisition. This acquisition follows up on its prior acquisition in Aug 2019 when DIALOG acquired a 25% stake for USD8.22m to bring its total stake to 75% (refer to our previous report dated 19 Aug 2019). As such, we were not surprised that valuations used for the two acquisitions are identical at 8.5x PER – greatly discounted as compared to DIALOG’s forward PER of ~35x. However, earnings impact is expected to be minimal, with the additional 20% stake estimated to contribute to ~RM3m earnings per year (<1% of FY20-21E). Like-wise, the acquisition also has minimal impact to DIALOG’s balance sheet (current net-gearing of ~0.2x). Ultimately, given the minimal financial impact, we are neutral towards the announcement, although we acknowledge the slight earnings and valuation accretions it could bring. The acquisition is also in-line with DIALOG’s overall strategy of balancing its business portfolio between upstream, midstream and downstream.

Maintain OUTPERFORM, with an unchanged SoP-derived TP of RM4.15 – implying 42x forward PER, which is close to +2SD from its 5- year mean valuations. No changes in our FY20-21E numbers. Nonetheless, we continue to like DIALOG for: (i) its solid track record of earnings delivery, (ii) its defensive earnings from its tank terminal businesses, and (iii) Pengerang Phase 3 acting as a main growth catalyst driver over the longer-term.

Risks to our call include: (i) lower utilisations of its tank terminals, (ii) delay in EPCC jobs, which could further delay income contributions from upcoming expansions, and (iii) delay in the development of Pengerang Phase 3

Source: Kenanga Research - 16 Dec 2019