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 accretion. The acquisition is also in line with DIALOG’s overall strategy of balancing its business portfolio between upstream, midstream and downstream. BUY TP of RM4.15 implying 42x forward PER. 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 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.

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).

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%. 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).

The acquisition has minimal impact to DIALOG’s balance sheet (current net-gearing of ~0.2x). The acquisition is in-line with DIALOG’s overall strategy of balancing its business portfolio between upstream, midstream and downstream.

Source: Rakuten Research - 16 Dec 2019