Dialog’s wholly-owned subsidiary was served with notice of arbitration by TLP  with  regards to a fire that broke out in an oil terminal in 2008. TLP’s potential claim of MYR546.6m-561.2m makes up about 37.5-38.6% of Dialog’s equity as at Dec 2013 and we note that it is currently in a net debt  position.  Pending  clarification  by  management,  we  maintain  our BUY call and SOP-based MYR3.71 FV.

• Breaches of obligations under EPCC contract. Dialog announced that its  wholly-owned  subsidiary  Dialog  E&C  SB  (DEC)  was  served  with  a notice  of arbitration  from  Tanjung  Langsat  Port  SB  (TLP)  following  the provision of an engineering, procurement, construction & commissioning (EPCC)  contract  in  2006.  The  MYR89.5m  contract  was  for  the development of the 100,000 cu m oil terminal project at Tanjung Langsat Port, Johor. TLP claims that it suffered losses and damages caused by  a fire in Aug 2008 in a part of the facility after the completion and handover of the project by DEC. The former also claims that the fire was due to the latter’s breaches of its obligations under the contract.
• A  MYR546.6m-561.2m  claim  by  TLP.  TLP  is  claiming  between MYR546.6m-561.24m  in  total  for  various  reasons.  These  include  an indemnity  against  all  of  its  liability  towards  its  dedicated  users,  which include  –  and not limited to  –  USD20.8m (c.MYR66.2m) for the loss of products  stored  in  the  facility;  USD2.1m  (c.MYR6.7m)  for  additional costs,  fees  and expenses incurred; and USD118.4m (c.MYR378.9m) for the dedicated user’s loss of use of the facility.  
• Maintain  BUY  with  an  unchanged  SOP-based  MYR3.71  FV.  The potential  claim  of  MYR546.6m-561.2m  makes  up  about  37.5-38.6%  of Dialog’s  equity  as  at  Dec  2013.  It  also  currently  sits  on  a  net  debt position  of MYR397.9m.  At this juncture, we are unable to determine the likelihood  and  actual  quantum  of  the  claim .  W e  believe,  however,  this might  be  a  long-drawn-out  case  and  that  the  potential  liability  may eventually  be  smaller  than  the  headline  amount.  According  to  its statement, management believes that this will not affect  Dialog’s FY14 operational  and  financial  position.  We  are  maintaining  our  BUY recommendation  at  the  moment  –  pending  more  details  –  with  an unchanged:  i)  SOP-based  MYR3.71  FV,  and  ii)  FY14/15  earnings estimates.

Recommendation Chart

Source: RHB