Dialog Group - Looking at enhanced oil recovery jobs with Halliburton BUY

- We maintain our BUY call on Dialog Group (Dialog) with an unchanged sum-of-parts derived fair value of RM2.85/share. Our fair value implies an FY12F PE of 29x, above its three-year average of 25x but below its peak of 40x in 2007.

- Dialog has entered into a Memorandum of Understanding with Halliburton Energy Services (M) Sdn Bhd to jointly cooperate to pursue projects and opportunities in the re-development of mature oil fields in Malaysia, which involve enhanced or improved oil recovery projects.

- This strategic alliance will enable Dialog to continue developing its upstream capabilities in the oil and gas activities which include the rejuvenation of mature oil fields and the development of marginal fields, and leverage on the group’s expanding portfolio in providing engineering, fabrication and specialist services. 

- US-based Halliburton, which has a market capitalisation of US$26bil, is one of the world’s largest providers of products and services to the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimising production through the life of the field.

- Recall that the Dialog currently has a 32% equity stake in the Balai small field risk service contract together with its leading partner Roc Oil (48%) and Petronas Carigali (20%). The group is currently eyeing 2-3 additional small field risk service contracts, which will expand the group’s recurring earnings profile.

- We are positive on the group’s constant drive to enter into strategic alliances with key service providers to leverage on Dialog’s expertise and underpin the group’s earnings trajectory. Hence, we maintain FY12F-FY14F earnings. 

- We remain positive about the group’s expanding recurring earnings profile which stems from:-1) Further expansion in tank terminal operations in Pengerang, potentially from a projected 5mil cu metres to 8-10mil cu metres which could raise our SOP further by 13% to RM3.21/share, 2)  Potentially 2 new small field concessions added to the Balai project, and 3) Synergising engineering/construction, fabrication,  specialist products/services and maintenance operations which can further leverage on the growth of the group’s expanding tank terminal and marginal field operations. The stock currently trades at an attractive FY13F PE of 24x, below its 2007 peak of 40x.

Source: AmeSecurities