Dialog, with its track record in building and maintaining terminal facilities in Kertih and Tanjung Langsat, is upbeat on the potential for the RM5-billion Pengerang project which will attract other related oil and gas (O&G) industries and also create thousands of jobs.

Dialog executive chairman and group managing director Ngau Boon Keat said: “There are tremendous spinoff opportunities from the Pengerang project and it may eventually attract total combined investments of up to another RM95 billion (from other companies and O&G industries).”

Dialog’s Ngau said there are tremendous spinoff opportunities from the Pengerang project.
He told The Edge Financial Daily that Dialog, the Johor government and Vopak are the core facilitators for the project, which is an Entry Point Project (EPP). The EPP is under the government’s National Key Economic Areas (NKEA) and part of the government’s Economic Transformation Programme (ETP).

The latest boost for the project was the Johor government’s decision to approve the site — 500 acres of reclaimed land — for a 60-year lease. The state government and Vopak are Dialog’s partners to undertake the project. Vopak is the world’s largest independent tank terminal operator, specialising in the storage and handling of liquid and gaseous chemicals as well as oil products.

“The approval will enable Dialog, the Johor government and Vopak to own and develop an independent deepwater petroleum terminal with jetty and other marine facilities with water depth of up to 26m, capable of handling very large crude carriers.

“The combined investment in the terminal would be RM5 billion over a seven-year period. Dialog’s investment would be RM2.3 billion of which 30% would be from equity and 70% from project financing,” said Ngau.

For the financial year ended June 30, 2010, Dialog had gross cash and cash equivalents of RM261.06 million which should provide it sufficient financial resources. With total borrowings of RM75.4 million, the company had net cash of RM185.66 million, equivalent to 9.4 sen per share.

For the financial year ended June 30, 2010, it reported net profit of RM122.47 million on the back of RM1.14 billion in revenue compared with FY09’s earnings of RM101.48 million on the back of RM1.1 billion in revenue.

To date, Dialog and its partners have invested RM7 million for the preliminary work, including a detailed feasibility study and some preliminary project design and engineering work. An environmental impact assessment (EIA) is under way and close to completion.

Major spin-off effects
Ngau says the technical aspects of the feasibility study concluded that the site is suitable for land reclamation of about 500 acres. The phased construction will create five million cubic metres of storage capacity.

“The recent approval given by the Johor government for a 60-year lease for the 500 acres of reclaimed land is very significant,” he adds.

Ngau expects oil consumption to grow rapidly in this region, spurring more oil trading and the need for oil terminal capacity.

Why did Ngau initiate such a massive project? He says that unless Malaysia takes the step to promote and attract investors to invest in oil terminals, it will face greater competition from neighbouring countries.

“Tax revenue from the proposed project and spin-offs from the related industries could enable the government to collect RM12 billion over the life of the project,” he adds.

He expects 5,000 jobs will be created to build the terminal storage and marine facilities and another 1,000 jobs for operation and maintenance.

“We hope, with government and Pemandu support, the Pengerang project will move quickly and put off competing projects,” he adds.

Ngau says the proposed terminal will also complement Dialog’s investment in the terminal facilities in Kertih, Terengganu and Tanjung Langsat, Johor.

Tanjung Langsat,
Saudi projects on track
Meanwhile, Dialog is also busy with the Tanjung Langsat terminal facilities, which involves a total investment of RM600 million over three phases.

For phase one, the annual capacity for naphtha and distillates are 130,000 cubic metres, and for phase two 270,000 cubic metres.

Phase three could see an additional 80,000 cubic metres in annual capacity. Phase two started operations in April this year.

Dialog is also undertaking the Jubail supply base at the Jubail commercial port in Saudi Arabia. Work on phase one will start in November this year and Dialog targets to complete it by June 2011.
Ngau says the supply base has the capacity to be a billion-dollar business when fully completed over the next five to six years.

“Initial phase one investment is RM100 million. The anticipated total investment is RM650 million over the next five to six years,” he adds.

So far, Dialog is the only O&G player which is setting up the supply base, but Ngau says potential O&G players who registered their interests to use the base include major O&G companies, suppliers, logistics companies and service providers operating in the surrounding areas.

Back home, work on Dialog’s new headquarters building at Mutiara Damansara, Petaling Jaya, will take off in January next year. The RM140 million cost of the new headquarters includes financing costs.

Ngau says work is expected to start in January 2011 and expected to be completed by the first quarter of 2013.

The tower block will have 16 storeys and will be occupied by Dialog Group, while the five-storey annexe block will be for the MyKasih Foundation, a charity-based and non-profit foundation supported by Dialog to help the poor and needy in Malaysia.

Analysts positive on
Dialog’s prospects
Dialog’s emergence as a significant O&G player has not gone unnoticed.

OSK Research said in a recent report, the total capacity of the entire Pengerang project could be as mush as four million to five million cubic metres, which is about 10 times the size of its existing Kertih and Tanjung Langsat centralised tankage facilities (CTFs) which have storage capacity of only 400,000 cubic meters respectively.

“Although we are uncertain as to the exact timing of the actual construction of the CTF, we continue to like the stock’s steady and defensive nature,” it said.

RHB Research Institute said the storage capacity of Pengerang could be around 10 times that of the Tanjung Langsat terminal and as such, once it takes off, it will take Dialog to a whole new playing field.

“The company remains our favourite of the sector given its conservative and asset-light strategy. Moreover, it is the leading tank terminal player in Malaysia,” it said.

In FY2010, the company saw net profit increase 26.3% to RM116.11 million, or 5.9 sen per share, on the back of a 3.1% growth in revenue to RM1.139 billion.

Dialog’s share price closed at RM1.25 yesterday, near its 52-week high of RM1.26 set on Oct 14. The stock has risen 32.6% year-to-date.