Tuesday 20 November 2012

Dialog Group - One More Upstream Tie-up on The Plate

THE BUZZ  
Dialog  Group  (Dialog)  announced  on  Bursa  Malaysia  yesterday  that  its  wholly-owned  subsidiary,  Dialog  D&P,  has  entered into a subscription and shareholders’ agreement  with Asia Energy Services (AES), a wholly-owned subsidiary of Haliburton International,  to subscribe for 50% equity in Haliburton Bayan Petroleum (HBP) to jointly manage an  oilfield services contract.

OUR TAKE 
 Positive on latest venture. HBP had earlier entered into an oilfield services contract as  an independent technical service contractor with Petronas Carigali to provide contractor  services  to  enhance  the  recoverable  reserves  from  the  Bayan  Field,  located  offshore  Bintulu  in  Sarawak.  The  project  value,  estimated  at  some  USD1.2bn  (RM3.7bn),  will  stretch over 24 years. We opine that the latest move is positive for Dialog as this reflects  Petronas’ confidence in Dialog’s capabilities in undertaking upstream projects. 

Roping in a solid partner. We believe that the Dialog-Haliburton tie-up is a solid one as  Dialog is an established oil and gas service provider in Malaysia which boasts of a solid  balance  sheet  while  Haliburton  is  a  seasoned  provider  of  products  and  services  to  the  energy  industry  with  expertise  in  the  upstream  oil  and  gas  industry.  This  partnership  could  potentially  be  a  catalyst  for  Dialog  to  secure  more  oil  and  gas  field  rejuvenation  jobs  in  the  future  as  it  beefs  up  its  technical  expertise.  This  would  also  enhance  and  sustain the group’s future recurring income as well as reinforce its position as a leading  integrated technical services provider.
Raising  FYE14  estimates  by  6.6%.  Incorporating  potential  contributions  from  Dialog’s  new upstream business, we are raising FYE14 our top-line and bottom-line forecasts by  7.9%  to  RM1.9bn  and  6.6%  to  RM280.4m  respectively  (assuming  net  margins  of  10-15% from its upstream venture).
Maintain  BUY.  As  Dialog  recently  released  its  2012  annual  report,  we  have  retrospectively  updated  the  numbers  into  our  financial  model.  Accordingly,  we  are  revising  higher  our  fair  value  on  the  counter  from  RM3.16 to RM3.45 as we roll over our numbers to FY14 earnings based on a sum-of-parts valuation. We are,  at  the  same  time,  excluding  our  sum-of-parts valuation for Dialog’s Langsat Terminal 3 project as we  understand management will focus on other projects moving forward. Dialog remains as our favourite stock in  OSK’s oil and gas universe due to  the group’s strong cash generation business, fortified by a solid balance  sheet.
Source: OSK

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