DIALOG–Fundamental Analysis (21 Jun 2016)

Excel – Download the analysis file

Latest Financial – Q3 2016 Financial Report (18 May 2016)

FY16 Q3 Results Highlight:

  • Dialog’s 2QFY16 earnings declined marginally by -3.6%yoy to RM78.9m, but grew on a sequential quarterly basis by +1.2%qoq. The sustainably strong earnings were largely contributed by the Malaysian operations which contributed approximately 73% of total earnings.
  • Earnings from the Malaysian operations which contributed approximately 74% of total earnings were higher due to higher work levels from the engineering and construction activities from its ongoing projects. These ongoing projects are Pengerang Deepwater Terminal Phase 2, MLNG Train 9, Toyo bullet tanks and SAMUR piping works.
    • The company did however acknowledge that sales of specialist products for the upstream segment have been sluggish.

Valuation:

DIALOG-FY16Q3-Football-Field

  • In my opinion, fair value of DIALOG range from 1.85 to 1.95. Uncertainty risk of fair value is MEDIUM.

Going Forward:

  • On prospects, Dialog said the drop in oil prices will lower the overall costs of processing, manufacturing and production of a wide range of petroleum and petrochemical products. This would have a positive impact on the midstream and downstream sectors of the oil and gas industry.
  • Phase 1 of the Pengerang Deepwater Terminal is in full operation with 1.3 million cu m fully leased out. The group continues to be bullish on the prospects of Pengerang Deepwater Terminal.
  • Phase 2 will have 2.1 million cu m of storage capacity, with a total investment cost of RM6.3 billion and is scheduled to be completed progressively in 2018 and 2019.
  • In addition, the company further noted that the RM2.7b joint venture with Petronas Gas Berhad for the development of Liquefied Natural Gas regasification facilities comprising a regasification unit and two units of 200,000m3 LNG storage tanks with an initial send out capacity of 3.5MTPA is scheduled to be completed at the end of 2017.
  • The Group is currently busy with EPCC works on Phase 2 of Pengerang Deepwater Terminal, which is the development, construction and operation of the facilities required for the handling, storage and distribution of crude oil, petroleum, chemical and petrochemical feedstock, products and by-products to and from the Refinery and Petrochemical Integrated Development (“RAPID”) complex. The estimated total cost in Phase 2 is RM6.3 billion with 2.1 million m3 of storage capacity. This project is scheduled to be completed progressively in 2018 and 2019.
  • In the upstream sector, production enhancement activities continue to be carried out in Bayan field and D35, J4 and D21 clusters. Efforts are ongoing to identify and mature new oil opportunities in these mature fields. In addition, the Group is seeking viable production assets which may become available.
  • The drop in oil prices will lower the overall costs of processing, manufacturing and production of a wide range of petroleum and petrochemical products. In addition, the strong demand for storage facilities for petroleum products reinforce the Group’s strategy to further develop and invest in the Pengerang Deepwater Terminal for the long term. The Group will continue to benefit from long term sustainable recurring income when the additional tank terminal facilities start operations.
  • Valuations may not very compelling, but not bad. DIALOG still appeals to funds seeking earnings stability.
  • I will continue to hold and accumulate this counter.

At the time of writing, I owned shares of DIALOG.

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