CIMB Equities Research expects Dialog Group Bhd to deliver strong earnings growth from next year onwards.
KUALA LUMPUR: Maybank Investment Bank Research is retaining its Buy call on Dialog Group
and RM3 target price for Dialog Group as Petroliam Nasional’s (Petronas) planned upgrade of its Kerteh refinery is a positive for the company.
The research house said on Monday that the upgrade ensures the extension of Dialog’s 30%-owned Kertih Centralised Tankage facility (KCTF) concession beyond 2020, a concern/ risk in the past.
“Overall, we remain an enthusiast of its business and management. Dialog is at the forefront to leverage on the demand for storage facilities in SEA, with its development at Johor (Pengerang & Tanjung Langsat). Our target price is sum-of-parts base),” it said.
Maybank Research said Petronas plans to upgrade its refinery in Kerteh, Terengganu by 2022 to produce higher quality fuel and expand the crude type it processes beyond Tapis.
Petronas Penapisan (Terengganu) MD & CEO Zabidi Ahmad said at a Platts Conference recently that production of light sweet Tapis crude is declining.
Hence, Petronas is looking to: (i) switch to other grades such as medium-sweet Kimanis and (ii) processing different condensates, such as the Australia’s North West Shelf, Iran’s South Pars or Qatar’s DFC.
The Kerteh upgrade, which would be completed by 2022, will allow the refinery to produce fuels that meet Euro V standard specifications although the capacity will remain unchanged. The refinery’s primary units are a crude distillation unit and a condensate splitter.
“The upgrade of the refinery is a positive development for Dialog. It is an indication that the concession for its 30%-owned Kertih Centralised Tankage facility, which will end in 2020 will be extended, albeit with a possibility that the existing rates would be re-negotiated.
“In our view, the capacity at KCTF (400k cum m storage) will remain unchanged. KCTF contributes about MYR30m p.a. to the group’s earnings.
“We see progress of its tank terminal businesses. Based on its land size at Pengerang, Dialog could quadruple its tank storage capacity to 18m cu m in the long term. Our model/ NPV incorporates a 7.2m cu m capacity there for now, or 40% of its optional potential,” it said.
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