HLIB Research said Dialog’s expansion in Langsat Terminals will contribute positively to the group’s recurring income stream.
PETALING JAYA: Dialog Group Bhd
is expected to secure more tank terminal contracts following the group’s latest contract win for a long-term take-or-pay tank terminal lease, says CGS International (CGSI) Research.
The research house said in a report it believed more such contracts are close at hand for Dialog after a five-year drought.
On Monday, Dialog announced that Hong Kong-based EcoCeres had agreed to commit to a six-year lease of a new set of tanks with storage capacity of 100,000 cu m at Dialog’s wholly-owned Langsat 3 tank terminal in Johor.
EcoCeres is setting up a used cooking oil and palm oil mill effluent refinery in Pasir Gudang, which is scheduled to be operational in the second half of 2025.
CGSI Research said the 100,000 cu m EcoCeres lease is Dialog’s first long-term take-or-pay contract since 2019, when it signed a 10-year lease of 430,000 cu m of refined product tanks at Pengerang Phase 3 to BP Singapore.
“We believe that one of the key potential re-rating catalysts for the stock is that the drought of contracts has ended, with Dialog poised to sign other tank terminal leases in the foreseeable future,” it added.
The research house has reiterated an “add” call on the stock with an unchanged target price (TP) of RM3.05.
It noted the re-rating catalysts include faster-than-expected progress in securing new customers at Dialog’s Phase 3 of the Pengerang Deepwater Terminal (PP3) and the launch of new development phases at PP3 and Langsat 3.
“These new customers may include Rongsheng Petrochemical and ChemOne.”
It added that Dialog has secured higher rates for its plant maintenance services that were locked under a five-year master service contract with Petroliam Nasional Bhd effective July 1, 2019.
Hong Leong Investment Bank (HLIB) Research said in a note that Dialog’s expansion in Langsat Terminals will contribute positively to the group’s recurring income stream while diversifying its terminal operations to cater for renewable fuel products.
“Also, we understand that renewable fuel terminals typically command 30% to 50% higher rates than its conventional counterparts,” it added.
On the financial impact, HLIB Research said its calculations suggested that the expansion will contribute RM18.3mil and RM19.3mil to Dialog’s financial year 2027 (FY27) and FY28 earnings, respectively.
“Based on a weighted average cost of capital of 7%, we arrive at an net present value of RM224mil from this project, implying a four sen per share increment to the overall equity value of Langsat Terminals,” it said.
HLIB Research’s assumptions are as follows: capital expenditure of RM250mil, debt-to-equity ratio of 70%, S$8.5 per cu m with annual step up rate of 2% and blended utilisation rate of 95%.
It said: “Post-rolling over our valuation base year to FY25, we maintain a ‘buy’ call on Dialog with a higher TP of RM3.04 from RM3.”
The research house also likes Dialog for its recurring income business model and its unique position in riding the future expansion of Pengerang via development of tank terminals.
Kenanga Research in its latest report said it has upgraded Dialog’s TP by 2% to RM3.23 from RM3.18, after imputing the discounted cash flow valuation from the announced expansion.
It said it continued to like Dialog for margin recovery at its plant maintenance; engineering, procurement, construction and commissioning as well as specialist product businesses; its earnings growth and diversification driven by the forays into upstream investments, including production assets, and its strong track record in project execution.
The risks to its call include prolonged and intensifying cost pressures, delay in capacity expansion plans and reduced utilisation of tank terminals.
