PETALING JAYA: Analysts have mixed opinions about Dialog Group Bhd
’s small-field asset production sharing contract (SFA PSC) worth US$235mil Baran Junior Cluster (BJC), which has received its final investment decision.
The contract was signed with Petroliam Nasional Bhd (PETRONAS) by Dialog in partnership with Petroleum Sarawak Exploration and Production (PSEP) on Jan 17, 2023, but the contract had only been approved by PETRONAS on Jan 8, this year.
The 14-year contract outlines a two-year development phase, followed by 10 years of production, implying first oil in early 2027 at the earliest. Dialog will hold a 70% stake in the contract.
AmInvestment Bank Research said it viewed the contract win positively despite its small potential but decided to maintain its “hold” call on Dialog with a target price of RM2 a share.
This was based on the fact the contract has a simpler structure which is likely to see enhanced returns from the project and hit Dialog’s target for an internal rate of return in the low-teens.
“The SFA PSC model will not include supplementary payments, hence Dialog is able to benefit entirely from any upsides to oil prices above the set base level,” the research house said in a report on Dialog.
Additionally, it added Dialog will be able to bear the RM1.1bil capital expenditure based on its strong balance sheet position and is expected to see a net gearing increase to 0.22 times in financial year 2027 (FY27) from 0.12 times at present.
“Nevertheless, we maintain our thesis that the impact from the near-term catalyst remains marginal by about 5% due to the group’s significantly large asset base.
“Though we are positive on the development premised largely on a favourable contract structure and much needed boost to medium-term earnings, until materialisation of the second phase for the Pengerang Integrated Petroleum Complex in Johor, we maintain our forecasts for now pending further disclosure from management on the fields estimated reserve and production volume,” the research house stated.
On the other hand, Kenanga Research maintained its “outperform” call on Dialog with a sum-of-parts based target price of RM3.37 a share and said it believes the SFA PSC could provide a boost to the company.
“We are not imputing its impact to our valuation for now due to the lack of details.
“However, by inferring from the company’s experience with the PSCs for the D35, D21, J4 fields off Sarawak, we postulate that it potentially offers about 26 sen a share accretion, assuming similar field economics,” the research house said.
Kenanga Research said that once more details on the project are made available, it would proceed to incorporate them into its valuation of Dialog.
The the research house added that with Dialog’s past successes for the Bayan and D35, D21, J4 fields in the same basin, the new contract suggests manageable execution risks.
The research house said Dialog’s upstream portfolio could also gain further headway from the Raja Cluster off Peninsular Malaysia, which is currently in the feasibility stage if its moves to the production stage.
“Dialog’s earnings are also on an upward trajectory, driven by improved utilisation rates and spot rates at its independent tank terminals due to the sustained increase in demand regionally for storage,” Kenanga Research said .
“The completion of legacy engineering, procurement, construction and commissioning (EPCC) contracts should also pave the way for better EPCC margins in the coming quarters,” it added.
