KUCHING: Dialog Group Bhd (Dialog) has been viewed as on track to build on its long-term recurring income generating asset base with its multiple tank terminals.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), while Dialog’s second quarter of 2016 (2Q16) results came below expectations, it believed that the group is on track to build on its long-term recurring income generating asset base with multiple tank terminals put in place to capitalise on the potential growth in Malaysia’s downstream sector in the refinery and petrochemical integrated development project (RAPID).
The research arm of AmInvestment Bank Bhd (AmInvestment) in a separate report, highlighted that the group has commenced engineering procurement and construction (EPCC) works on the RM6.3 billion Pegerang Deepwater Terminal (PDT) Phase 2.
“This is a dedicated industrial tank terminal catering to the RAPID complex with progressive completion in 2018 to 2019. Additionally, the RM2.7 billion liquified natural gas (LNG) regasification plant and storage tanks, in which Dialog has a 25 per cent equity stake, are scheduled for completion by end-2017.
“The RM5.5 billion EPCC contract for the construction of PDT Phase 2 will fully occupy Dialog’s fabrication, engineering and construction division, and underpin the group’s earnings over the next two to three years.
“Additionally, Dialog has recently secured the first fabrication job at the newly completed Dialog Fabricators Pengerang Facility, adjacent to Petronas’ RAPID project,” it explained.
As Dialog is aiming to secure new potential partners for the subsequent phases of PDT, which will involve downstream development of more petroleum, petrochemical and LNG storage facilities, AmInvestment expect this strategic project to continue driving further EPCC contracts and additional recurring income streams for the group over the long term despite the current low crude oil environment.
Meanwhile, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said contribution from the tank farm business maintained its profitability for the second consecutive quarter at RM15 million.
“This was largely attributable to terminal operations in Kertih, Tanjung Langsat and Pengerang. In addition, the Pengerang Independent Terminal has been fully leased,” it added.
The research team noted that the group continues to be bullish on the prospects of PDT. In addition, the company noted that production in the Bayan field continues to be enhanced.
On the other hand, AmInvestment believe that near-term contributions from oil enhancement activities for Bayan field and D35, J4 and D21 clusters are unlikely to be significant.
Aside from that, it expects minimal impact from the recent abortion of the group’s joint-venture in the Balai cluster marginal field project.
“Nevertheless, this is more than offset by rising services demand from downstream and storage facilities, which benefit from a low oil price environment,” it pointed out.
On Dialog’s performance in 2Q, MIDF Research noted that Dialog’s 2QFY16 earnings declined marginally by 2.2 per cent year-on-year (y-o-y) to RM78 million, but grew on a sequential quarterly basis by 29.9 per cent quarter-on-quarter (q-o-q).
“The sustainably strong earnings were largely contributed by the Malaysian operations which contributed approximately 73 per cent of total earnings,” it added.
The company’s international segment also recorded better y-o-y performance, mainly attributable to higher fabrication activities in New Zealand, logistic services from Jubail Supply Base and sales of specialist products and services which are mainly denominated in US dollar, MIDF Research said.
Overall, the research team pegged a ‘neutral’ view on the stock.