Dialog Group - Starting off Jubail supply base with maiden contract 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 a FY12F PE of 29x, above its three-year average of 25x but below its peak of 40x in 2007.

- Dialog’s 60%-owned Jubail Supply Base in Saudi Arabia has commenced operation with the maiden award of a long-term contract from Saipem’s subsidiary Snamprogetti to provide logistic services in moving cargo on projects cargo vessels from land to offshore work site at the Saudi Aramco Wasit Gas Development-Hasbah offshore facility.

- The value of the contract is estimated at SAR20mil (RM17mil) for a duration of 1.5 years but has an option for extension if agreed by both parties. Recall that Dialog has invested SAR110mil (RM94mil) in this one-stop integrated offshore logistic hub which also serve as a resource centre for oilfield services, equipment and supplies to support the growing offshore oil & gas activities in the Arabian Gulf. 

- The Phase 1 for this supply base at Jubail Commercial Port has facilities comprising wharf for vessel berthing, bunker fuel and fresh water tank storage, workshop, warehouse and open storage yard.  It was developed on land measuring 3.5 hectares for a lease period of 25 years. If Phase 1 is successful, Dialog may opt for the extension of the base by another 28 hectares for Phase 2.

- While we are positive that this project has finally commenced operation after a postponement since the end of last year, we do not expect any significant contribution. For FY13F-FY14F, we expect the engineering, construction, procurement and installation services for the Pengerang tank terminal and Balai marginal field to underpin the group’s growth prospects.

- 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