Dialog Group - OUTPERFORM - 14 JUNE 2012

News  Dialog Group Bhd (Dialog) announced that its 60%-owned Jubail Supply Base in Saudi Arabia has started operations with a 18-month  contract worth SAR20m (c.RM17m) awarded by Snamprogetti Saudi Arabia Co. Ltd.

This involves the provision of logistic services in the Supply Base to assist in the movement of project cargo from land onto projects cargo vessels to be sent to offshore work sites for the Saudi Aramco Wasit Gas Development-Hasbah Offshore Facility.

Comments   To recap, Dialog has entered into a JV with Jubail Commercial Port to develop a 3.45ha leased land (Phase 1) in Jubail Suppy Base. To date, it has invested c.SAR110m (c.RM93.5m) in Phase 1 of the Supply Base. The remaining 40% stake of the project is owned by Sedres Maritime Co. Ltd. 

This is the maiden contract for the new Supply Base.  Profit  margin  is  expected  to  be  high  (we have assumed an EBITDA margin of over 50%) as there will be minimal opex after the capex has been incurred.

We  expect  Dialog  to  book  in  RM5m  in  net  profit from this contract, or an addition of RM3m to FY13 earnings for a start.  

Management guided that it is expecting a RM20m profit a year at the net level (based on its 60% stake) from Phase 1 when it runs later at full capacity. Meanwhile, the  company is negotiating with two other users for the utilisation of the remaining space in Phase 1.

Once the two new users are secured, it will start developing Phase 2 on a 28ha land. 

Outlook  Earnings contributions from the Phase 1 of Jubail Supply Base will lift Dialog’s FY13 earnings by c.8%, based on full utilisation.

Even without Jubail Supply Base, the group’s profit  is  expected  to  reach  a  new  record  level from 2HFY12 onwards as new sources of income kick  in  such  as  LT2  and  EPCC  jobs  from  LT3, Pengerang CTF and Balai Marginal Fields contracts. 

Forecast  No changes to our estimates for now as the contract will only impact the group’s earnings by 1%-2%. However, we may adjust our forecasts later should the contribution gets larger towards full utilisation of Phase 1 as highlighted above. 

Rating  MAINTAIN OUTPERFORM

Valuation   We are maintaining our price target of RM3.09/SOP share.

Risks  Risk  to  our  call  is  any  potential delays in its inhouse EPCC jobs, which will negatively impact its future recurring incomes.  

Source: Kenanga