DIALOG has entered into a share purchase agreement to acquire an additional 25% equity interest in Halliburton Bayan Petroleum for USD8.2m. This brings DIALOG’s equity stake to 75%, from 50% currently. BUY with TP of RM4.15 implying 42x forward PER. 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.

DIALOG has entered into a share purchase agreement with Asia Energy Services Sdn Bhd to acquire an additional 25% equity interest in Halliburton Bayan Petroleum Sdn Bhd for a purchase consideration of USD8.22m (or c.RM34.5m). Postacquisition, this would bring DIALOG’s equity stake of Halliburton Bayan Petroleum to 75%, from 50% equity stake currently.

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).

The increased stake would lead to a consolidation of Halliburton Bayan Petroleum’s financials into DIALOG’s accounts (as opposed to current earnings being recognised into the JV-line of DIALOG’s income statement). That said, the acquisition should have a minimal impact on DIALOG’s balance sheet (net-gearing of 0.2x as at end-FY19, with netdebt of RM790m). Likewise, earnings impact is also minimal, as we estimate the extra 25% stake would contribute ~RM4m per year of additional earnings to DIALOG (<1% of FY20-21E earnings).

This also implies an acquisition valuation of ~8.6x PER – greatly discounted to DIALOG’s current trading valuations of 35.5x forward PER. Ultimately, given the minimal financial impact from the acquisition, we are overall neutral, although we acknowledge the fact that it could provide a slight earnings and valuation enhancement.

Source: Rakuten Research - 19 Aug 2019