- 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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