August 14, 2023 [TheStar] – Dialog Group Bhd’s prospects are expected to remain positive, underpinned by its tank farm business, stable downstream margins as well as its on-track major expansion plans, says Kenanga Research.
Post a recent meeting with the group, the research house has maintained its forecasts with an “outperform” call on the stock at a target price of RM3.10.
In a note to clients yesterday, Kenanga Research said: “Dialog’s midstream tank terminal business is doing well, evident from high utilisation rates exceeding 90%.”
Additionally, the spot rates for the group’s independent terminals are currently robust, at above S$6 or RM20.41 per cubic metre.
In comparison, historical utilisation of Dialog’s terminals typically ranges lower at 70% to 80%, it added.
“The surge in demand is partly driven by Australian and New Zealand oil importers that use Dialog’s terminals in Pengerang,” said Kenanga Research.
The research house also said: “We understand that margins for downstream contracts have stabilised over the previous two quarters.
“This is mainly due to the progressive completion of legacy contracts that did not price-in higher costs from the current inflationary environment.”
Dialog had reassured that margins have now turned the corner following the expected completion of older contracts by end-financial year 2024, said Kenanga Research.
“For instance, the extension option on Petroliam Nasional Bhd’s five-year umbrella contract for plant turnaround and maintenance is expected to be due for exercise in 2024.”
Moreover, for new contracts, Dialog will incorporate higher pricing to reflect the current challenging environment, the research house added.
Meanwhile, the group’s ambitious expansion plans in Pengerang and Tanjung Langsat also remained on track.
“This is underpinned by new oil and gas facilities at the Pengerang Energy Complex (PEC) and traction in demand for storage of sustainable products,” Kenanga Research noted.
The group is also currently courting customers to enter into long-term offtake agreements of at least 10 years for dedicated storage in Pengerang.
They include its existing client BP Singapore, new investors at the PEC or international energy traders such as Vitol, Trafigura and Vopak.
“As such, we believe there will be potential interest from new investors at the PEC,” said Kenanga Research, adding that they include Singapore-based ChemOne and China-based Rongsheng Petrochemical.
Kenanga Research also said Dialog is confident that it will be able to secure new customers to offtake capacity at Tanjung Langsat Terminal Phase 3.
This is given the robust demand for sustainable storage amid limited market capacity, it added.
“Hence, Dialog’s management has alluded to the possibility of retrofitting its existing terminals in Tanjung Langsat Phase 1 and 2 to cater for sustainable fuels.
“This would be positive for Dialog’s environmental, social and governance profile as well as margins,” noted Kenanga Research.
The research house also continues to like Dialog for its resilient non-cyclical earnings with multi-year growth prospects from future capacity expansion.
In addition, active diversification into upstream production assets will enable the group to capitalise on oil price rallies and near-term earnings expansion from Tanjung Langsat Terminal Phase 3 that is targeted for completion by end-2024.
However, the risks for the group include prolonged and intensifying cost pressures, delay in capacity expansion plans and reduced utilisation of tank terminals.
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