The research firm believes that Dialog is likely to proceed with a further expansion of its tank terminal capacity of 1.2m cu m gradually (expected to start in 2022) as demand for petroleum products and crude oil storage space would be strong upon completion of the many petrochemical facilities in the area.
KUALA LUMPUR: Dialog Group Bhd
is in discussions with multiple global investors that may build new specialty chemical plants at Pengerang Phase 3, with the company potentially taking 20-30% stakes in these plants, with an initial investment of US$300mil, says CIMB Equities Research.
The research house said on Wednesday the majority of investors expressed concern that Dialog may diversify from its stable tank terminal operations, and enter into specialty chemical investments that may be more risky, cyclical, and volatile.
“However, Dialog’s strong track record of taking calculated and rewarding risks convinced a minority of investors to give it the benefit of the doubt.
“We concur with the latter view, and also point out that these specialty chemical plants are synergistic with Dialog’s existing businesses,” it said.
For instance, Dialog may be the engineering, procurement, construction and commissioning (EPCC) contractor for the plants, may be positioned to perform the maintenance services over the entire useful life of the plants, and may provide dedicated storage tanks for long-term lease to the plants.
Petronas Chemicals’ (PCG) isononanol (INA) specialty chemicals plant cost US$450mil to build.
A 20% investment in a similar-sized plant will cost Dialog US$90mil, and Dialog may invest in more than one plant.
In addition, Dialog will also likely invest the majority of the cost of the supporting tank terminal infrastructure.
Based on its Sept 30, 2018 balance sheet, Dialog has the capacity to spend US$345mil capex before its net gearing hits 50%, which is the threshold at which it may raising new equity.
“We think Dialog may raise new equity in CY20F at the earliest, if it makes the decision to invest in at least two plants, in our estimate,” it said.
Dialog’s only rights issue so far was in February 2012, which raised RM476mil for the tank terminal business (397m shares; two-for-10 rights shares at RM1.20 each).
“Based on our discussions with investors, we suspect that some may take profit on Dialog’s shares while waiting for further details on the potential specialty chemical investments.
“The near-term direction of Dialog’s share price depends on the depth of its communication with investors and whether they can be convinced,” CIMB Research said.
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