Dialog Group on steady front among O&G peers

KUCHING (July 16): Oil and gas (O&G) player Dialog Group Bhd’s (Dialog) valuation has remained steady in recent months at a one-year forward price earnings ratio of 21 to 23 times, which is a premium to selected O&G large-cap average of 18 times.

Given the group’s resilient earnings profile and strong balance sheet amongst peers, analysts with AmInvestment Bank Bhd (AmInvestment Bank) believe the differential is due to Dialog’s significant upside in the medium term (three to five years).

Among some of its updates is that the pre-development study for the Baram Junior Cluster offshore Sarawak is progressing well and management expects to submit a field development and abandonment plan (FDP) by end-2024.

“This will be followed by a two-year development period before the field is operational and contributes to earnings, likely by FY27. Recall that the field is under a 14-year production sharing contract (PSC) in a 70:30 venture with Petros,” AmInvestment Bank said in its report today.

The research house also sees the group as a beneficiary of the Johor theme play following the state government’s proposal to include Pengerang within the Johor-Singapore Special Economic Zone (JS-SEZ).

“The inclusion is expected to confer tax breaks and long-term financial incentives crucial to final investment decisions (FID) for investors, in our view.

“The federal government aims to conclude an agreement by September with details to be released as part of Budget 2025 in mid-October.”

AmInvestment Bank gathered from management that discussions with prospective clients for its tank terminal business are still ongoing. Recently, Singapore’s ChemOne Group announced that it is aiming for the start-up of its planned US$5 billion Pengerang Energy Complex by end-2027.

“Additionally, we remain hopeful over developments from Rhongsheng Petrochemical’s planned RM80 billion facility, largely due to its existing relationships with Pengerang Integrated Complex’s joint-venture partner Saudi Aramco in other regions despite the lack of formal progress.”

The research team believe Dialog’s downstream earnings bottomed out in 2QCY24 following the renewal of its plant maintenance contracts and completion of its legacy engineering, procurement, construction and commissioning (EPCC) jobs.

“Early in the year, we gathered that the ratio of internal-to-external contracts comprised 50:50 of Dialog’s downstream orderbook.

“For reference, internal contracts consist of the construction of the 24,000 cubic metre tank terminal facility in Tanjung Langsat, 12,000 metric tonnes per annum maleic acid plant in Gebeng, Pahang and the Morimatsu fabrication yard in Pengerang.

“We expect to see sequential improvement in absolute dividend per share (DPS) moving forward. We observe stronger calls for returns by minority shareholders in recent quarters.”