We are positive on the green light received by Dialog to develop a key phase  of  its  mega  Pengerang  Terminal  project  -  dedicated  for  LNG storage,  trading  and  supply  to  the  requirements  of  the  Pengerang Integrated Complex. We don’t expect any impact to our 3-year earnings forecast, given its long development period. Maintain BUY, with revised MYR2.00 TP (28.2% upside) to account for our new oil price forecast.  

Details  of  the  shareholders’  agreement.  Dialog’s  wholly  owned subsidiary,  Dialog  LNG  SB,  inked  a  shareholders’  agreement  with Petronas  Gas  (PTG  MK,  NEUTRAL,  TP:  MYR21.98)  on  14  Nov,  to undertake  a  MYR2.7bn  development  of  Liquefied  Natural  Gas  (LNG) regasification facilities. The development comprised a regasification unit and  two  units  of  200,000  m³  LNG  storage  tanks.  The  tanks  will  have initial  send  out  capacity  of  3.5m  tonnes  per  annum.  Dialog  expects  its stake  in  the  JV,  Pengerang  LNG  (Two)  SB  (PLNG-2),  to  dilute  to  25% from 100% previously, while Petronas Gas  will acquire 65% of PLNG-2 and  Johor  State  for the  remainder  10%  of  the  special  purpose  vehicle. According to Petronas Gas, 4Q17 is the targeted commercial operation.   

Our  view.  This is another positive development for Dialog’s long-term recurring income stream, as it marks at least 2 out of 3 of its key phases for  the  mega  Pengerang  Terminal  projects  that  have  been  given  the green  light.  The  third  phase,  in  which  the  company  expects  to  see  full development  by  mid-2018,  will  be  similar  to  PLNG-2  in  the  sense  that both  are  dedicated  for  the  Refinery  And  Petrochemical  Integrated Development (RAPID). Nonetheless, given the long development period, we do not expect significant earnings accretion until late 2017 (FY18).

Maintain  BUY,  SOP  TP  adjusted  to  MYR2.00  (from  MYR2.25).  We reevaluated our SOP to take into account i) our current oil price forecast of USD90-100/bbl, ii) a 25% stake in PLNG2, and iii) lower P/E multiple to reflect current O&G sentiment. Our FY16F forecast is reduced by 2%  as lower oil prices will have direct impact on Dialog’s upstream activities. While the stock will be increasingly driven by offshore developments, we believe current levels do not reflect its defensive nature in its locational advantage and concession-nature of its tank  terminal/ logistic business.  Risk  to  our  valuation  would  be  worse-than-expected  costs,  as  the company is in the midst of an expansion.

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Source: RHB