Dialog Group - LT3 puts on hold

News    Last Friday, Dialog’s 55%-owned Centralised Terminals Sdn Bhd (CTSB) announced that it had terminated its shareholders agreement (SHA) with China Aviation Oil (Singapore) Corporation Ltd (CAO) to build, own and operate Langsat Terminal 3 (LT3). The remaining 45% stake in CTSB is owned by MISC Bhd (MP; TP: RM4.66).

Comments          To recap, under the agreement, CTSB will own 74% of LT3 with the remaining 26% by CAO. Effectively, Dialog will own 40.6% in LT3. LT3, which will cost RM371m, will have a storage capacity of 380,000m3 when it is completed by end-2003. Thus far, the landfill of the site has been completed.

We understand that the termination was due mainly to two of the four conditions stated in the SHA are not fulfilled within the required timeframe as the authority of Tanjung Langsat Port (TLP) had yet to add two more berths to its existing facilities.

Although the agreement has been terminated, both parties, CTSB and CAO have agreed to continue to explore other suitable collaboration opportunities in the region.

This is expected to be sentiment-negative but CTSB should be able to find a new off-taker, if not CAO, once the berths issue is solved given that the strong demand for storage tank facilities in the region. In addition, the owner of TLP, Johor Corp is currently going through a restructuring exercise. The berths issue should be solved once the group exercise is completed.

Outlook       Dialog’s profit is expected to reach new record levels from FY13 onwards as new sources of income kick in such as those from LT2 and in- house EPCC jobs from Pengerang CTF and Balai Marginal Fields.

Forecast     We have cut our FY13 estimate by 7% as we removed the RM186m EPCC jobs from LT3.

FY14 estimate have also trimmed by 9% as we removed earnings from LT3 i.e. 1) the RM93m EPCC jobs, and 2) the 6-month income of operating the CTF.

Rating   MAINTAIN OUTPERFORM even with our revised target price.

Valuation     After removing the contribution from LT3, our new SOP-driven price target is now RM2.79/share from RM3.09/share previously.

Risks      Potential delays in its in-house EPCC jobs, which will negatively impact its future recurring incomes.

Source: Kenanga