Introduction
As Dialog Group (DLG) celebrates 40 years of growth, it continues to preserve value and diversify its portfolio. This comprehensive analysis delves into the company’s efforts to ramp up its upstream track record and proprietary technology, with a focus on overseas projects and renewables. We recommend accumulating at lower entry levels to capitalize on the potential upside.
Company Overview
Dialog Group provides engineering, procurement, construction, and commissioning (EPCC) services and plant maintenance services. The company also owns tank terminals for storing oil and gas, while marketing specialty chemicals and equipment.
Stock Data:
- GICS Sector: Energy
- Bloomberg Ticker: DLG MK
- Shares Issued: 5,642.6 million
- Market Cap: RM13,768.0 million (US\$3,060.9 million)
- 3-Month Avg Daily Turnover: US\$4.2 million
- 52-Week High/Low: RM2.62/RM1.73
Major Shareholders:
- Ngau Boon Keat: 18.3%
- EPF: 16.5%
- Azam Utama: 7.6%
Key Updates and Developments
Storage Earnings and Vopak Results
Dialog’s storage earnings remain robust, supported by strong Vopak results announced in October 2024. Vopak’s 3Q24 EBITDA from its Asia/Middle East JV terminals reached EUR26 million, surpassing the pre-2024 quarterly base. This consistent performance indicates a sustainable EBITDA base, driven by high utilization rates and peak storage rates.
Impact of US General Election
The storage industry remains resilient despite the US General Election outcome. Vopak emphasized that its customers navigate various scenarios, focusing on long-term business stability. This underscores the importance of storage for energy security, as highlighted by China’s President Xi Jinping.
Upstream Segment Gains
Dialog has made significant progress in the upstream segment. Since achieving first gas in July 2023 via T7Global’s platform, the Bayan Gas redevelopment project consistently delivers its targeted gas volumes. Additionally, the production enhancement of offshore processing plans has successfully recovered the Bayan field’s oil volume and minimized the natural decline of the D35/D21/J4 production sharing contract (PSC).
Baram Junior Cluster PSC
Dialog owns a 70% stake in the Baram Junior Cluster PSC. The two-year pre-development plan is due by the end of 2024, with an option to surrender the PSC at minimal cost. Continuing with the PSC’s development is strategic, given its partnership with Petro and the opportunity to utilize the recently acquired Tarpon Platform system.
Financial Performance and Forecast
Key Financials
| Year |
2022 |
2023 |
2024F |
2025F |
2026F |
| Net Turnover (RMm) |
2,319 |
3,002 |
3,051 |
3,040 |
3,084 |
| EBITDA (RMm) |
574 |
506 |
623 |
696 |
777 |
| Operating Profit (RMm) |
334 |
251 |
300 |
378 |
435 |
| Net Profit (adjusted) (RMm) |
504 |
499 |
609 |
670 |
721 |
| EPS (sen) |
8.0 |
7.9 |
9.7 |
10.6 |
11.4 |
| PE (x) |
30.5 |
30.8 |
25.3 |
22.9 |
21.3 |
| Dividend Yield (%) |
1.4 |
1.5 |
1.8 |
2.0 |
2.2 |
Earnings Forecast
We retain our earnings forecasts, with a results announcement tentatively scheduled for 19 November 2024. Clear signs of earnings recovery from multiple fronts, including storage projects, support our positive outlook. Dialog can leverage internal EPCC jobs and avoid high-risk projects, enhancing its financial stability.
Valuation and Recommendation
We maintain a BUY rating with a target price of RM3.10, pegged to FY25 valuations at a 29x PE ratio. Dialog’s earnings downside risk is limited, and potential catalysts from the Johor-Singapore economic wave are not fully priced in. We estimate a valuation of RM0.50 for Pengerang Phase 3 storage, further supporting the target price.
Sum-of-the-Parts (SOTP) Valuation
| Segments |
Valuation (RM) |
| Core Business (18x P/E on net profit, ex-associates) |
1.23 |
| Kertih Terminal (400,000m³, 30% stake, WACC 9%) |
0.04 |
| Tanjung Langsat 1 and 2 (740,000 m³, 100% stake, WACC 9%) |
0.26 |
| Pengerang Phase 1 and 2 Upgrades (PITSB) |
1.12 |
| D35 PSC + Bayan + POEC T (Assume O&G price of US\$90-100/bbl, WACC 12%) |
0.11 |
| Expansion Potential (PLNG2, Langsat, and Pengerang Phase 3) |
0.50 |
| (-) Net Debt (Including warrant proceeds) |
(0.16) |
Total SOTP: RM3.10
Implied P/E: +1SD of 10-year average 29.1x
Implied P/B: 3.1x
Environmental, Social, and Governance (ESG) Updates
Environmental
Dialog has made strides in reducing carbon emissions and promoting climate change and circular economy initiatives. The company continues to maintain zero fatalities, despite two Loss-Time Injury Rate (LTIR) incidents in Malaysia in FY24.
Social
Dialog promotes diversity with 33% female representation in the management team. Additionally, it has donated over RM440 million since the inception of MyKasih, an initiative set up by the founder.
Governance
The company’s board of directors includes five out of nine independent members with diverse backgrounds, although there is family representation in the management team.
Conclusion
Dialog Group’s strategic focus on value preservation and diversification positions it well for future growth. With strong financials, a resilient storage segment, and promising upstream developments, the company is poised for continued success. Investors are advised to accumulate shares at lower entry levels to benefit from the potential upside.
