Dialog Group Bhd (Jan 16, RM2.36)
Maintain buy with lowered target price (excluding rights) RM3.05 from RM3.35: We have raised FY12 to FY14F earnings estimates by 8% to 20% on higher engineering, procurement, construction and commissioning (EPCC) revenue (+RM400 million to RM900 million per year). Our three-year net profit compound annual growth rate (CAGR) of 21% now reflects Dialog’s 20% to 30% growth guidance.
Our sum-of-parts-based target price has however been lowered to RM3.05 (from RM3.35) after adjusting for the two-for-10 rights issue (excluding warrants).
Despite trading at 25 times 2013 earnings (which incorporated just partial earnings potential), we continue to rate Dialog a “buy” on expectations of continuous major project wins in 2012.
Management has expressed participation interest in Petroliam Nasional Bhd’s upcoming marginal field risk sharing contract (RSC) and enhanced oil recovery (EOR) projects. It is targeting two or three new jobs, provided returns are palatable.
Proceeds raised from the recent two-for-10 rights issue (RM472 million cash) will be adequate to support this growth (one RSC project would cost about US$1 billion [RM3.15 billion]).
Marginal contributions are expected from Balai RSC at the pre-development stage. Dialog will likely earn nominal fabrication, base oil supply transport and installation (T&I) and hook-up and commissioning (HUC) income during this stage (FY12 to FY14F; assuming these are contracted to Dialog). Two or three wellhead platforms are required for this field, to be built by its fabrication unit, Fitzroy Engineering.
The joint venture (32% Dialog), which handles the Balai field, will not recognise any profit until it hits first oil or gas production.
The first phase of the Pengerang centralised tankage facilities (CTF) project (initial storage capacity of 1.3 million cu m) is scheduled to commence operations by 2014.
While the initial blueprint indicates a five million cu m capacity by 2020, Dialog has stated that it could double the storage capacity to 10 million cu m should the need arise.
Our back-of-the-envelope calculation suggests that an extra five million cu m would earn Dialog about RM245 million in net profit per year, or 1.6 times FY11 earnings (based on its effective 46% stake).
Overall, we like Dialog’s business model, respectable earnings growth, focused management and healthy balance sheet. Dialog offers attractive earnings visibility and defensive qualities, with steady, progressive dividends. — Maybank IB Research, Jan 16
This article appeared in The Edge Financial Daily, January 17, 2012.
Maintain buy with lowered target price (excluding rights) RM3.05 from RM3.35: We have raised FY12 to FY14F earnings estimates by 8% to 20% on higher engineering, procurement, construction and commissioning (EPCC) revenue (+RM400 million to RM900 million per year). Our three-year net profit compound annual growth rate (CAGR) of 21% now reflects Dialog’s 20% to 30% growth guidance.
Our sum-of-parts-based target price has however been lowered to RM3.05 (from RM3.35) after adjusting for the two-for-10 rights issue (excluding warrants).
Despite trading at 25 times 2013 earnings (which incorporated just partial earnings potential), we continue to rate Dialog a “buy” on expectations of continuous major project wins in 2012.
Management has expressed participation interest in Petroliam Nasional Bhd’s upcoming marginal field risk sharing contract (RSC) and enhanced oil recovery (EOR) projects. It is targeting two or three new jobs, provided returns are palatable.
Proceeds raised from the recent two-for-10 rights issue (RM472 million cash) will be adequate to support this growth (one RSC project would cost about US$1 billion [RM3.15 billion]).
Marginal contributions are expected from Balai RSC at the pre-development stage. Dialog will likely earn nominal fabrication, base oil supply transport and installation (T&I) and hook-up and commissioning (HUC) income during this stage (FY12 to FY14F; assuming these are contracted to Dialog). Two or three wellhead platforms are required for this field, to be built by its fabrication unit, Fitzroy Engineering.
The joint venture (32% Dialog), which handles the Balai field, will not recognise any profit until it hits first oil or gas production.
The first phase of the Pengerang centralised tankage facilities (CTF) project (initial storage capacity of 1.3 million cu m) is scheduled to commence operations by 2014.
While the initial blueprint indicates a five million cu m capacity by 2020, Dialog has stated that it could double the storage capacity to 10 million cu m should the need arise.
Our back-of-the-envelope calculation suggests that an extra five million cu m would earn Dialog about RM245 million in net profit per year, or 1.6 times FY11 earnings (based on its effective 46% stake).
Overall, we like Dialog’s business model, respectable earnings growth, focused management and healthy balance sheet. Dialog offers attractive earnings visibility and defensive qualities, with steady, progressive dividends. — Maybank IB Research, Jan 16
This article appeared in The Edge Financial Daily, January 17, 2012.
