DEVELOPMENT

• Dialog Group's (Dialog) wholly-owned subsidiary Dialog (Labuan) Ltd (DLL) has entered into an agreement to dispose of its entire 60% equity stake in Dialog Jubail Supply Base Company Limited (DJSB) to Sedres Trading & Maritime Services Co Ltd (Sedres), for a total cash receipt of approx. RM55m comprising of sale consideration of approx. RM3.5m and dividends of approx. RM51.5m to be received prior to completion.
• The disposal involves the sale of 1,200 ordinary shares or DLL's entire 60% equity interest in DJSB, while the sale consideration is based on a willing-buyer willing-seller basis, after considering DJSB's adjusted net assets of about RM89.9m.

OUR VIEW

• Selling for more. The original cost of investment in DJSB is approx. RM1.4m in CY11, and the shares sales resulted in a gain to Dialog for approx. RM1m. The sale proceeds, which will be received within the next 9 months, will be used for working capital purposes. We expect the gain to be reallocated to other strategic investments with a higher potential to grow, such as in the renewable energy and expansion of its storage capabilities.
• In line with changing landscape. DJSB is principally involved in the provision of logistic services of a supply base and trading of base oil in Saudi Arabia. The business landscape is evolving in Jubail Port area wherein most of the heavy lifting work that DJSB provides is expected to decrease gradually and favouring normal logistics services only. With that and with Sedres' interest to take over DJSB as a locally owned company in Saudi Arabia, it is an opportune time for Dialog to divest its stake in DJSB.
• Positive on strategic move. We opine that this strategic move by Dialog will help the group to focus to other expertise areas within our local and regional fronts. The adaptation to the market change in the Jubail Port is also aptly timed, as this agreement could ensure a smooth transaction without jeopardising its operation optimisation. Nevertheless, we noted that there could be risks to this matter, including: (i) near-term market volatility affecting the value of the divestment, (ii) operational risks in the transition of ownership, and (iii) unforeseen regulatory changes which could jeopardise the financial benefits.
• Considering that this agreement has no material impact on the earnings, net assets and net gearing, we make no changes to our forecast projection for Dialog, and maintain our BUY call, with an unchanged target price of RM2.72.

Source: MIDF Research - 28 Aug 2024