DIALOG GROUP BHD

Steady quarter but consensus needs to moderate lower

Investment Thesis

Dialog as a defensive, high-quality storage play over the long term combined with:

(i) likely upstream & plant maintenance revenues in the medium term,

(ii) steady storage demand over the longer term

(iii) potential for further expansion opportunities in Pengerang.

 

Valuation

DCF valuation of Dialog’s 30% stake in Kertih at a WACC of 6%, a DCF valuation of its 100% stake in Tanjung Langsat I, II & III at a WACC of 6%, and a DCF valuation of its stake in Pengerang at a WACC of 6%. Additional phases at 15x EV/EBITDA of potential capacity expansion assuming a 40% equity stake. FY21-22E average P/E of 20x to EPCC and plant maintenance and a FY21-22E average P/E of 20x to its catalyst handling and base oil divisions. LNG terminal equity investment of 25% stake (SPV3). Zero value for the upstream asset Bayan (~95% stake) and its 20% stake in PSCs D35, D21 and J4.

Downside Risks

1)a steep fall in oil prices

2) weaker-than-expected order wins and order execution success

3) delays at RAPID

4) capital calls.

 

Technical Analysis

Last Price: RM2.62

Resistance: RM3.2 (R1), RM3.4 (R2)

Cut loss: RM2.55

DIALOG GROUP BHD (TRADING BUY)

-After sliding from a high RM3.93 in mid Nov last year. (Double pattern was formed previously). Expect technical rebound soon.

-RSI showed oversold. Plus RSI is reversing from oversold zone. Positive stochastics crossover.

-Riding on the rebound strength. Resistance Target of RM3.2 (18% upside potential).

-Based on fundamental, DIALOG owns upstream field, retails petroleum to oil, gas and petrochemical industries. Dialog Group serves customers worldwide. Net profit RM 136.1m (+12% QoQ) in Q3 Mar 21.