INVESTMENT HIGHLIGHTS

• Dialog Group Bhd’s wholly-owned unit Dialog Pengerang Sdn Bhd entered into MoU with Johor government and State Secretary Johor

• MoU is for development of common tankage facilities and dedicated deepwater marine facilities

• Pengerang Deepwater Terminals Phase 3 project value approximately RM2.5b

• Project was previously guided by management

• Maintain NEUTRAL (upside bias) with revised TP of RM2.83 per share

Pengerang Deepwater Terminals Phase 3. Dialog Pengerang Sdn Bhd signed a memorandum of understanding (MoU) with State Government of Johor and State Secretary, Johor to outline Pengerang CTF Sdn Bhd’s involvement in the development of common tankage facilities and dedicated deepwater marine facilities – known as Pengerang Deepwater Terminals Phase 3. The engineering, procurement and construction works for the reclamation, soil improvement and shore protection works has been awarded to PentaOcean (M) Sdn Bhd. The 300acre land reclamation work is expected to be completed in 22 months.

Phase 3 facilities. The RM2.5b project will consist of: (i) common tankage facilities and dedicated deepwater marine facilities; (ii) development of more petroleum and petrochemicals storage terminals and; (iii) development of industrial land for further downstream oil and gas related activities.

New corporate structure. Pengerang CTF Sdn Bhd is currently a wholly owned unit of Dialog Terminals Sdn Bhd, which in turn is a wholly onwned unit of Dialog Group. The new structure will see Dialog Terminals Sdn Bhd holding 80% of Pengerang CTF Sdn Bhd while Permodalan Darul Ta’zim, wholly owned unit of State Secretary, Johor will hold the remaining 20%.

Focus on tank farms moving forward. Dialog’s strategy is clear – immediate to long-term focus on tank farms. Pengerang Deepwater Terminal Phase 1 is being expanded by 430,000m3 while construction of Phase 2 is on schedule.

Maintain Neutral with positive bias. Dialog’s share price has been volatile on the upside, stoked by positive news flows from Pengerang and solid earnings. The company’s forward PER is currently at 35x. Given the strong global crude oil price and strong downstream sub-segment of the value chain, we are revising our target price upward to

RM2.83 per share (previously RM2.55), whilst maintaining our Neutral recommendation with positive bias. Our valuation is based on a sum-of-parts method pegging a PER of 28x to its core businesses i.e. EPCC, Plant Maintenance, Specialist and Catalyst. As for the centralized tankage facilities business, our discounted cash flow is based on a discount rate of 8%.

Source: MIDF Research - 6 Apr 2018