Friday 14 September 2012

Dialog Group - Re-rating momentum intact from Pengerang, Balai and new EOR prospect 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 FY14F PE of 25x – at parity to its three-year average but below its peak of 40x in 2007.

- We maintain FY12F-FY14F net profits, with the expectation of further positive newsflow as the group is reaching key milestones in its Balai marginal field development, on-track progress for Pengerang Phase 1 terminal tank project as well as the potential announcement of a very significant enhanced oil recovery project with Halliburton. 

- We met up with management recently and was reaffirmed that Dialog’s re-rating process could gather momentum with the following key takeaways:-
(1) Pre-development progress of the Balai small field risk- sharing contract (RSC), which started drilling its first well Bentara 2 on 11 September this year and could reach its planned depth of 2,750 metres (9,000 feet) subsea by early next month. This well is part of the field’s  predevelopment phase which could have a possible earlierthan-expected production by the end of this year. 

(2) While the Balai oil and gas production is expected to start by 2Q2013, there is a possibility of earlier completion if the early production vessel for this project can be converted by early next year. Dialog has currently completed the fabrication of the four well-head platforms (WHP) at the group’s Banting yard and installed two of the WHP. We expect Dialog to leverage on the group’s current presence in the Balingian province off Bintulu, Sarawak to secure additional marginal field projects in the area when the group successfully completes its first RSC job.

(3) Dialog may also be on the verge of being awarded a very significant enhanced oil recovery (EOR) project in  the Balingian province. Dialog has the competitive edge in this yet-to-be-announced project, which lies in the vicinity of the group’s Balai cluster project. This stems from Dialog being able to leverage on the pipeline infrastructure being installed by the RSC contractors.  

(4) Pengerang developments continue to be rolled out with Dialog, Vopak and the Johor government planning to invest in a RM4.1bil liquefied natural gas terminal, which is in addition to the earlier 5mil cu metre tank terminal project costing an estimated RM5bil. Assuming a project IRR of 12%, equity stake of 30%, debt-to-equity ratio of 80:20, we estimate that this project could add 30 sen or 10% to Dialog’s SOP.

- While currently trading above the sector’s 18x, the stock’s FY14F PE of 20x is still attractive compared with its 2007 peak of 40x. 

Source: AmeSecurities 

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