As reported by The Borneo Post on 6 Jan, Dialog Group Bhd (Dialog) is expected to triple the combined capacity at its oil terminals in Kertih and Tanjung Langsat within the next three years, an effort that will underpin future growth.
“With phase one of Pengerang and phase three of Tanjung Langsat coming on-stream, its oil terminals capacity will be increased from its current production of 1.0 million cubic metres to 2.8 million cubic metres,”
HwangDBS Vickers Research Sdn Bhd (HwangDBS Vickers) reported that this would contribute to Dialog’s already impressive track record of five-year historical earnings compound annual growth rate (CAGR) of 28 per cent and three-year average returns on equity of 27 per cent. The research house highlighted that the results speak volumes of the company’s executive capability. It went on to project three-year earnings CAGR of 17 per cent over financial year 2011 to 2014, supported by higher capacity at Tanjung Langsat terminals and its RM2.3 billion construction order book.
“We estimate that over 70 per cent of its earnings are now recurring,” the report added, noting that the company had strong partnerships with global oil traders which could present more opportunities going forward.
The Balai cluster fields was in its pre-development phase with the first production likely by the second half of 2014 and potentially contributing RM40 million in profit for financial year 2015. HwangDBS Vickers said that the risk service contract (RSC) would be a major springboard for Dialog to move up the value chain as an energy and petroleum player, which complements its inter related technical services.
“A second marginal field RSC might be on the cards after the RM479 million rights issue to boost its war-chest for more upstream developments,” the research house added.
As such, HwangDBS pegged a target price of RM3.30 per share for Dialog, as it noted that the company’s rights issue with free warrants would prove a good entry point for investors.
The research house remained optimistic of Dialog’s prospects as its growing tank terminal business would underpin long-term earnings visibility, indicating that the company would likely see little execution risk given its proven track record and solid balance sheet.