Petronas Gas becomes controlling shareholder of Dialog's PLNG-2 unit

KUALA LUMPUR (Dec 16): Petronas Gas Bhd (PetGas) is now the controlling shareholder in Pengerang LNG (Two) Sdn Bhd (PLNG-2), a special vehicle which used to be wholly owned by Dialog LNG Sdn Bhd, which is in turn a wholly owned unit of Dialog Group Bhd. 

In a Bursa Malaysia filing this afternoon, Dialog said PLNG-2 has ceased to be a subsidiary of Dialog Group following PetGas' subscription of 780,000 ordinary shares - representing a 72.22% stake in PLNG-2 - for RM780,000, cash. This means that Dialog LNG now only holds 27.78% in PLNG-2.

"The intended equity shareholding of PetGas of 65% and Dialog LNG of 25% in PLNG-2, as earlier announced, will be achieved upon subscription by State Secretary, Johor (Incorporated) (SSI) of its 10% shareholding, which is expected in 2015," said Dialog in its filing. 

According to the shareholders' agreement signed on Nov 14 this year, PLNG-2 will be restructured whereby PetGas will acquire 65%, Dialog LNG to hold 25% and the SSI to hold the remaining 10%.

PLNG-2 will develop the liquefied natural gas (LNG) regasification facilities comprising of a regasification unit and two units of 200,000 m3 LNG storage tanks with an initial send out capacity of 3.5 million tonnes per annum of natural gas at Pengerang, Southern Johor, for about RM2.7 billion. 

As at 3pm, Dialog shares were four sen lower at RM1.28 with a market capitalisation of RM6.34 billion. PetGas was four sen down at RM21.20, giving it a market capitalisation of RM42.07 billion. 

Dialog up in early trade on positive 3Q earnings

KUALA LUMPUR (May 11): DIALOG GROUP BHD []'s shares advanced on Friday after its net profit for the third quarter ended March 31, 2012 rose 7.96% to RM41.39 million from RM38.34 million a year earlier, due mainly to higher revenue and increase in Malaysian operations arising from its provision of specialist products and services, engineering and CONSTRUCTION [] activities and fabrication works.

At 9.20am, Dialog rose five sen to RM2.27 with 292,500 shares traded.

It said on Thursday that revenue for the quarter jumped 39.5% to RM420.04 million from RM301.16 million in 2011, due consolidation of the revenue of the newly acquired fabrication and multi-disciplined engineering company, Fitzroy Engineering Group Ltd, based in New Zealand contributed to the increase in the group's revenue.

Dialog declared an interim 1.1 sen single tier cash dividend per share to be paid on June 29.



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CIMB Research maintains Outperform on Dialog

KUALA LUMPUR (May 11): CIMB Research has maintained its Outperform rating on DIALOG GROUP BHD [] at RM2.22 with a revised target price of RM2.93 (from RM2.95) and said delayed contribution from Phase 1 of the Pengerang terminal was behind Dialog’s results letdown, with 9M net profit coming in at only 60% of our full-year forecast and 63% of consensus estimate.

"But our optimism is intact as the earnings shortfall is purely a timing issue," it said in a note Friday.

"We reduce our FY12 EPS for the timing of Phase 1’s contribution.

"Our target price drops slightly as we update our SOP calculation. We continue to value the businesses at 18.2x P/E, a 40% premium over our CY13 target market P/E of 13x. Potential contracts for the Rapid project and marginal fields underpin our Outperform call," it said.



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Stocks to Watch Genting Group, Glenealy, Cuscapi, Century Logistics, Dialog

KUALA LUMPUR (May 11): The FBM KLCI may cap a tumultuous week on Friday on a weaker note, as external pressures have kept Asian equities in throughout the week, while European and US markets appeared to trend lower on Thursday as well.

European shares were down around midday in choppy trade on Thursday, as political concerns in Europe and global growth worries weighed on investor sentiment with basic resource stocks under pressure after weak trade data overnight from China, according to Reuters.

Meanwhile, S&P 500 futures were flat on Thursday as investors paused from a recent bout of selling ahead of the latest report on the labor market, it said.

Among the stocks that could be in focus are the Genting stable of companies, Glenealy PLANTATION []s (Malaya) Bhd, CUSCAPI BHD [], CENTURY LOGISTICS HOLDINGS BHD [], and DIALOG GROUP BHD [].

The Genting companies declared their final dividends respectively. GENTING BHD [] declared a final gross dividend of 4.5 sen per share of 10 sen each; Genting Malaysia declared a final gross dividend of 4.8 sen per share of 10 sen each, while Genting Plantations declared a final gross dividend of 5.75 sen per share of 50 sen each.

Glenealy's net profit fell 52.97% to RM10.93 million for its third quarter ended Mar 31, from RM23.24 million a year ago, due to lower production volume and higher production costs. It said on Thursday that its revenue for the quarter decreased 13.19% to RM60.02 million from RM69.14 million a year earlier.

Cuscapi's net profit plunged 70.92% to RM567,000 for its first quarter ended Mar 31, from RM1.95 million a year ago, dragged down by delays in uncompleted projects. In a statement on Bursa Malaysia on Thursday, the group said its revenue fell 21.34% to RM12.13 million from RM15.42 million a year earlier.

Century Logistics's net profit fell 33% to RM4.29 million in its first quarter ended Mar 31, from RM6.44 million a year ago due to start-up losses from its double hull product tanker. The company said it would be paying a seven sen final dividend in respect of the financial year ended Dec 31, 2011 on May 25, bringing the total single-tier dividend in respect of the year 2011 to 12 sen per share.

Dialog's net profit for the third quarter ended March 31, 2012 rose 7.96% to RM41.39 million from RM38.34 million a year earlier, due mainly to higher revenue and increase in Malaysian operations arising from its provision of specialist products and services, engineering and CONSTRUCTION [] activities and fabrication works.

It said on Thursday that revenue for the quarter jumped 39.5% to RM420.04 million from RM301.16 million in 2011, due consolidation of the revenue of the newly acquired fabrication and multi-disciplined engineering company, Fitzroy Engineering Group Ltd, based in New Zealand contributed to the increase in the group's revenue. Dialog declared an interim 1.1 sen single tier cash dividend per share to be paid on June 29.



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Dialog 3Q net profit rises 7.96% to RM41.39m

KUALA LUMPUR (May 10): DIALOG GROUP BHD [] net profit for the third quarter ended March 31, 2012 rose 7.96% to RM41.39 million from RM38.34 million a year earlier, due mainly to higher revenue and increase in Malaysian operations arising from its provision of specialist products & services, engineering & CONSTRUCTION [] activities and fabrication works.

It said on Thursday that revenue for the quarter jumped 39.5% to RM420.04 million from RM301.16 million in 2011, due consolidation of the revenue of the newly acquired fabrication and multi-disciplined engineering company, Fitzroy Engineering Group Limited, based in New Zealand contributed to the increase in the Group’s revenue.

Earnings per share was 1.75 sen compared to 1.79 sen previously, while net assets per share was 52.66 sen.

For the nine months ended March 31, Dialog’s net profit rose 18.5% to RM127.39 million from RM107.43 million on the back of revenue RM1.13 billion.

Dialog declared an interim 1.1 sen single tier cash dividend per share to be paid on June 29.

Reviewing its performance, Dialog said contribution from Malaysia and Asia operation such as Brunei, Thailand, Middle East and China, also increased significantly mainly due to higher revenue of Specialist Products & Services recorded.

It said its Singapore operation however registered lower revenue mainly affected by lesser works undertaken for its engineering and construction and plant maintenance activities.

On its prospects, Dialog said the development under Economic Transformation Programme in both upstream and downstream sectors would generate tremendous opportunities for the local oil and gas players.

“In this connection, being an integrated specialist technical services provider to the oil, gas and petrochemical industry, the Group will benefit from such opportunities,” it said.

Dialog said the development of the Independent Deepwater Terminal in Pengerang will not only bring in short to medium term contribution from engineering and construction activities in Malaysia, but also long term recurring income when the tank facilities are operational.

“In addition, the Group is investing in the upstream oil and gas opportunities, including the development and production of petroleum under the Small Field Risk Service Contract.

“The Group continues to grow its technical services, such as, its specialist products & services, engineering, procurement, commissioning & construction and plant maintenance services,’ it said.



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RHB Research Overweight on oil & gas sector

KUALA LUMPUR (April 6): RHB Research Institute Sdn Bhd has an Overweight rating on the oil and gas sector and said it was positive on the sector following Petroliam Nasional Bhd’s (Petronas) statement on April 5 that the proposed Refinery and Petrochemical Integrated Development (RAPID) project, to be located in Pengerang, Johor, was progressing as scheduled.

The research house said on Friday that the statement was the closest indication yet that the RAPID would proceed as planned.

According to Petronas, the RAPID project in Pengerang, Johor is progressing as scheduled, with pre-qualification exercise for the various tender packages likely to begin in stages from the 3Q2012 at the earliest. The project is currently in the front-end engineering design

“The key beneficiaries of RAPID include Dialog (as RAPID will complement its crude oil tank terminal, and provide opportunities for its plant maintenance business) and Petronas Chemicals, which will most likely be involved as owner/operator.

“The two stocks are our top picks for the sector,” it said.

RHB Research has an outperform rating on both Dialog and Petronas Chemicals, with fair values of RM3.08 and RM7.73 respectively.



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Dialog’s 2Q earnings up 15%

PETALING JAYA: Dialog Group Bhd’s net profit rose 15.2% to RM41.5 million for 2QFY12 ended Dec 31, on a 34% increase in revenue of RM358.6 million during the quarter.

The higher earnings were mainly due to the consolidation of the revenue of the newly acquired fabrication and multi-disciplined engineering company, New Zealand-based Fitzroy Engineering Group Ltd. For 6MFY12 ended Dec 31, 2011, revenue from its operation in Australia and New Zealand was RM142.2 million, or 20% of the group’s total revenue during the period.

“Contribution from Malaysia and Asia operations such as Brunei, Thailand, Oman and China, also increased significantly, mainly due to higher revenue of specialist products and services. The Singapore operation, however, registered lower revenue mainly due to fewer jobs undertaken by its engineering and construction and plant maintenance [divisions],” the group said in the announcement.

For 6MFY12, revenue from its Malaysian operation stood at RM316.9 million with an operating profit of RM90.2 million, while revenue from Singapore stood at RM57.2 million and an operating profit of RM11.3 million. Operating profit from Australia and New Zealand was at RM5.5 million, on the back of RM142.2 million of revenue, while profit from other parts of Asia was RM2.4 million against RM193.7 million in revenue.

On current year prospects, Dialog said the development of the oil and gas (O&G) industry under the Economic Transformation Programme (ETP) will generate tremendous opportunities for the local O&G players. It said that being an integrated technical service provider for the oil, gas and petrochemical industry, the group is poised to benefit from the opportunities.

“The ongoing expansion of tank terminals in Tanjung Langsat and the development of an independent deepwater terminal in Pengerang will not only bring in short- to medium-term contribution from engineering and construction in Malaysia, but also long-term recurring income when the tank facilities are operational.

“In addition, the group is investing in upstream oil and gas opportunities, including the development and production of petroleum under the small field risk service contract (SFRSC). The group continues to grow its technical services, such as its specialist products and services, engineering, procurement, commissioning and construction and plant maintenance services,” it said.

Dialog’s share price traded one sen lower yesterday at RM2.44, with only 5.9 million shares traded. Year-to-date, the stock has risen by 1.73% from RM2.39 on Jan 3, 2012, while it has risen by 27.28% in the 52 weeks from RM1.91 on Feb 14, 2011. The stock declined to RM1.74 in September last year and has since climbed nearly 40%.


This article appeared in The Edge Financial Daily, February 15, 2012.



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Sarawak gas finds to spur new investments

Oil and gas sector
Maintain overweight: Petroliam Nasional Bhd (Petronas) has made two new big gas discoveries offshore Sarawak with estimated recoverable reserves of almost four trillion standard cubic feet (TSCF), an estimated 4% of Malaysia’s current natural gas reserves of 14.8 billion barrels of oil equivalent. The gas finds were at the Kasawari and NC8SW fields in Block SK316 off Sarawak, through exploration wells Kasawari-1 and NC8SW-1. These are the latest wells drilled in Block SK316 which are part of Petronas’ strategy to intensify domestic exploration and prolong its reserves.

The Kasawari-1 well was drilled last November and gas was found in the carbonate reservoirs. The well, drilled to a depth of 3,196m, penetrated about 1,000m of gas column — the longest drilled section of gas column in the country. The well test produced 29 million standard cu ft per day of gas. Preliminary assessments conducted early this month indicate that the gas-in-place for the Kasawari field is over five TSCF, with an estimated recoverable hydrocarbon resource of just over three TSCF — which is one of the largest non-associated gas fields in Malaysia. The NC8SW-1 well, located about 17km south of Kasawari, was drilled last September to a total depth of 3,853m. Gas was found in a 440m column in similar carbonate reservoirs, which are estimated to have recoverable reserves of over 450 billion standard cu ft. Petronas said the NC8SW-1 well discovered potential oil play which requires further evaluation to determine its commercial viability.

While these new gas finds would need another three to five years of analysis and interpretation of seismic data before progressing to the initial development phase, they continue to fuel excitement for oil and gas investments in Sarawak, a major gas producer and exporter with the country’s only liquefied natural gas plant in Bintulu.

Over the next 12 months, we expect Shell’s massive enhanced oil recovery projects in the Baram Delta off Sarawak to gain prominence. These projects involve the Bokor, Bakau, Baram, Baronia, Betty, Fairley Baram, Siwa, Tukau and West Lutong oilfields.

But over the next six months, we expect fresh news from Petronas’ RM15 billion fast-tracked programme to develop gas reserves from a cluster of fields in the North Malay basin, off Peninsular Malaysia. This project is expected to commence production towards the end of 2013. Initial beneficiaries of the North Malay basin development will be fabricators such as Malaysian Marine and Heavy Engineering Holdings Bhd (MMHE), Kencana Petroleum Bhd, SapuraCrest Petroliam Bhd and Dialog Group Bhd. UMW’s oil and gas division, which provides oil country tubular goods and pipelines and rig services, and Wah Seong Corp Bhd for gas compression modules and pipe-coating services, could likewise benefit.

We remain excited about the sector given Petronas’ massive capital expenditure programme of RM300 billion over the next five years involving enhanced oil recovery, marginal fields and cluster/deepwater developments towards maintaining its oil and gas production. We remain “overweight” on the sector and retain our “buy” calls on MMHE, Bumi Armada Bhd, Dialog, SapuraCrest, Kencana Petroleum and Petronas Gas Bhd. — AmResearch, Feb 14


This article appeared in The Edge Financial Daily, February 15, 2012.



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Dialog rises on higher 2Q earnings

KUALA LUMPUR (Feb 15): DIALOG GROUP BHD [] shares advanced on Wednesday after its earnings rose 15.1% to 41.45 million in the second quarter ended Dec 31, 2011 from RM35.99 million a year ago, boosted by higher revenue from the consolidation of its new businesses and operations.

At 9.05am, Dialog rose three sen to RM2.47 with 424,600 shares traded.

Its revenue increased at a stronger pace of 33.5% to RM358.62 million from RM268.53 million. Its earnings per share were 2.10 sen compared with 1.84 sen.

MIDF Research maintained its Buy rating on Dialog with an unchanged target price of RM2.80.

The research house said in a note Wednesday that it was adjusting its earnings estimate marginally by -3.4%, taking into account lower-than-expected revenue recognition but offset by higher-than-expected contribution from the associate & JCE (refer to the CTF business).

“Earnings outlook is still promising for Dialog with estimated 3-year (FY11-FY13) CAGR of +26%. Our number has yet to factor in any potential contribution from Balai Cluster Field development.

“Dialog is a proxy play to the government’s initiatives to turn Malaysia into an international oil trading hub. Incentive for petroleum trading is expected to accommodate Dialog’s future expansions,” it said.



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AmResearch maintains Buy on Dialog Group at RM2.85

KUALA LUMPUR (Feb 15): AmResearch is maintaining its Buy call on Dialog Group with an unchanged sum-of-parts derived fair value of RM2.85 a share.

It said on Wednesday its fair value implied a CY12F PE of 30 times, above its three-year average of 25 times but below its peak of 40 times in 2007.

“Dialog’s 1HFY12 net profit of RM86 million (+25% on-year) came in within expectations, accounting for 42% of our and street’s estimates.

“For comparison, 1HFY11 accounted for a slightly higher 45% of FY11 net profit. We expect a stronger 2HFY12 contribution from Dialog’s engineering and procurement division as the land reclamation for the Pengerang Phase 1 tank terminal is scheduled for completion by June this year,” it said.

AmResearch said additionally, the pace of earnings recognition for its tank terminal operations is expected to accelerate as the 76,000 cu metre-Tanjung Langsat Terminal 1 phase 3 was completed in August 2011 while 171,000 cu metre-Langsat Terminal 2 was completed in December last year.

“We remain positive about the group’s expanding recurring earnings profile. The stock currently trades at an attractive CY12F PE of 26 times, below its 2007 peak of 40 times,” said the research house.



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Stocks to watch: AMMB, Dialog, RCE, Tebrau Teguh

KUALA LUMPUR (Feb 15): With the broader market showing signs of weakness, whether the market can perk up again hinges on fresh corporate developments and earnings which are going into full swing next week.

Also over the past two trading days, late fund support has helped the FBM KLCI close higher but volume has been declining in the broader market, with recent leaders among penny stocks and lower liners fading.

On the economic front, Bank Negara Malaysia is scheduled to release its fourth quarter GDP data after market. Most importantly, investors would want to hear is Bank Negara Malaysia’s assessment of the economy and its outlook.

As for stocks, among those which could see trading interest are AMMB HOLDINGS BHD [], DIALOG GROUP BHD [], RCE CAPITAL BHD [] and TEBRAU TEGUH BHD []. Naim Indah could also see trading interest with downside bias as more traders take profit.

AMMB posted net profit of RM357.18m for the third quarter ended Dec 31, 2011, up 9.8% from the RM325.31 million a year ago underpinned by profit growth across most divisions. Its revenue increased 7.2% to RM1.955 billion from RM1.824 billion. Earnings per share were 11.95 sen compared with 10.83 sen.

For the nine-months ended Dec 31, 2011, its earnings increased by 13.8% to RM1.168 billion from RM1.026 billion in the previous corresponding period. Its revenue registered a 14% increase to RM6.047 billion from RM5.302 billion.

Dialog’s earnings rose 15.1% to 41.45 million in the second quarter ended Dec 31, 2011 from RM35.99 million a year ago, boosted by higher revenue from the consolidation of its new businesses and operations.

Its revenue increased at a stronger pace of 33.5% to RM358.62 million from RM268.53 million. Its earnings per share were 2.10 sen compared with 1.84 sen.

Meanwhile, Dialog’s 396.87 million rights shares issued under its rights issue with warrants will be listed and quoted on Wednesday.

Bernama reports RCE Capital Bhd's pre-tax profit fell 10.4% to RM105.237 million for the nine-month period ended Dec 31, 2011 from RM117.44 million a year ago. The decrease was due to the loan financing segment, which posted a lower pre-tax profit by RM8.6 million arising from lower interest income generated from its loans and receivables.

For the third quarter, RCE Capital posted a lower pre-tax profit of RM30.645 million compared with RM42.401 million a year ago. Its revenue declined to RM61.11 million from RM77.179 million.

Meanwhile, the Malay Chamber of Commerce Malaysia (MCCM) Johor has announced its plan to acquire a 33.15% stake in Tebrau Teguh from Kumpulan Prasarana Rakyat Johor Sdn Bhd (KPRJ).

Its president Syed Ali Alattas was quoted saying by Bernama that MCCM Johor, supported by MCCM, would be offering KPRJ 80 sen per share or about RM177 million.

"We will send the official letter by the end of the month," Syed Ali, who is also MCCM president, said on Tuesday. He added MCCM Johor was also willing to buy KPRJ's 41.15% stake in Tebrau Teguh.

KPRJ plans to sell a 33.15% stake in Tebrau Teguh to Iskandar Waterfront Holdings Sdn Bhd (IWH) for 76 sen a share, or RM168.7 million in total. The move will result in IWH having to make a mandatory general offer for the rest of Tebrau Teguh’s shares at the same price.

KPRJ, which is the Johor state’s investment arm, currently owns a direct 41.15% stake in Tebrau Teguh. IWH is owned by KPRJ and Credence Resources Sdn Bhd.



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Dialog Group 2Q earnings up 15.1% to RM41.45m with new biz, Asian ops

KUALA LUMPUR (Feb 14): DIALOG GROUP BHD []’s earnings rose 15.1% to 41.45 million in the second quarter ended Dec 31, 2011 from RM35.99 million a year ago, boosted by higher revenue from the consolidation of its new businesses and operations.

It said on Tuesday its revenue increased at a stronger pace of 33.5% to RM358.62 million from RM268.53 million. Its earnings per share were 2.10 sen compared with 1.84 sen.

“The consolidation of the revenue of the newly acquired fabrication and multi-disciplined engineering company, Fitzroy Engineering Group Ltd, based in New Zealand was the main contributor to this significant increase (in revenue),” it said.

Dialog added that contribution from Malaysia and Asian operations such as Brunei, Thailand, Oman and China, also increased significantly mainly due to higher revenue of specialist products and services recorded.

In the first half ended Dec 31, 2011, its earnings grew 24.4% to RM85.99 million from RM69.09 million while its revenue increased 34% to RM713.85 million from RM532.33 million.



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Dialog continues growth story into 2012

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.



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BIMB Securities cautiously optimistic in 2012

What does 2012 hold for equity markets? After a volatile 2011 that saw financial markets tumble and investor sentiment rattled by the debt crisis in the US and eurozone, geopolitical upheavals and natural disasters, how will the local stock market fare in the New Year? BIMB Securities head of research Kenny Yee shares insights with The Edge Financial Daily’s Surin Murugiah.

What is your outlook for the Malaysian stock market and economy for 2012?
We are cautiously optimistic for 2012. Though the Asian region remains solid, like others our concerns stem on the progress in the eurozone and how it is going to pan out following numerous fund injections into the region.

What is your target for the FBM KLCI for 2012?
We have 1,600 as our preliminary target for 2012 at par to our market’s average PE of around 15.5 times.

Yee believes a full-blown crisis can be averted with regards to the euro-debt crisis.

How do you think the euro debt crisis will play out, and what impact will it have on Malaysia?
Judging from the more proactive approach by the policymakers, we believe a full-blown crisis can be averted. Nonetheless, our concerns stem from the intensity of the crisis and the aftermath on the global financial entities. With regards to the impact on Malaysia, though our economy is more domestically driven, nonetheless we are not insulated on the export front.

The years 2010 and 2011 were seen as years of M&A (merger and acquisition) activities, and the government’s economic transformation programme. What do you see as the domestic theme for 2012?
We believe the M&As as initiated by the GLICs (government-linked investment companies) to continue as part of the process to rationalise the shareholdings in GLCs (government-linked companies) and would have positive implications on the stock market.

As for the themes for 2012, our focus remains on the construction and oil and gas sectors. The plantation sector could offer an interesting proposition as well.

If the general elections are held in 2012, as widely expected, how do you expect the market to react, pre and post elections?
We have done some analysis on the past five GEs and there are no correlation between the general election on the stock market.

What sectors do you like for 2012?
Consumer, construction, oil & gas and possibly plantation.

What are your top stock picks and why?
Construction: Benalec Holdings Bhd (Rather insulated from external vagaries, most projects are domestic centric and strong order book.)
Oil & gas: Uzma Bhd (An up- and-coming oil & gas player. With expertise in the upstream segment).
Dialog Group Bhd (Strong orderbook backed by higher recurring income.)
Plantation: TH Plantations Bhd (improving prospects from recent land acquisitions)

Your wish list for the year?
Eurozone soft landing and flow of foreign funds back to Asia.



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Dialog going full throttle

Dialog Group Bhd
(Jan 4, RM2.66)
Initiate coverage with a buy call at RM2.64 with target price of RM3.30: Dialog’s integrated technical services will underpin its future growth.

Its impressive track record — five-year historical earnings compound annual growth rate (CAGR) of 28% and three-year average return on equity of 27% — speaks volumes of its execution capability.

We are projecting three-year earnings CAGR of 17% over FY11-14 supported by higher capacity at the Tanjung Langsat terminal and a RM2.3 billion construction order book.



Dialog will almost triple combined capacity at its oil terminals in Kertih and Tanjung Langsat from one million cu m now to 2.8 million cu m within the next three years, with phase 1 of Pengerang and phase 3 of Tanjung Langsat coming on stream. We estimate over 70% of its earnings are now recurring. Strong partnerships with global oil traders such as Trafigura and Vopak could present more opportunities going forward.

Balai cluster fields are now in pre-development phase with first production likely by 2H14, and potentially contributing RM40 million profit in FY15. The risk service contract (RSC) is a major springboard for Dialog to move up the value chain as an exploration and production player, which complements its integrated technical services.

A second marginal field RSC may be on the cards after the RM479 million rights issue to boost its war chest for more upstream development.

We initiate coverage of Dialog with a sum-of-parts-derived target price of RM3.30 (post-rights: RM2.95, ex on Jan 5, 2012).

Its rights issue (RM1.20/share) with free warrants offers a good entry point. We are optimistic of Dialog’s prospects, as its growing tank terminal business will underpin long-term earnings visibility.

The massive Pengerang project in Johor over the next seven years is also a major transformation for Dialog. There should be little execution risk given Dialog’s proven track record and solid balance sheet. — HwangDBS Vickers Research, Jan 4



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Stocks to watch: JCY, Dialog, AirAsia, MAS

KUALA LUMPUR (Jan 5): Despite the second day of pullback on the local stock market , especially blue chips on Wednesday, the overall market sentiment continues to be firm due to the "January effect" while fresh corporate news could stir buying interest in selected stocks at least in the short-term.

However, RHB Research Institute was cautious as due to the overhanging concerns of the second half of 2011, it was fearful that this could be another year of “more of the same”.

However, it did note the possibility of two market rallies in the near term, which were the “January effect” and “Chinese New Year rally”.

RHB Research said in a note on Wednesday that while the January effect has been evident every year for the last 10 years (and has led to a positive annual return in seven of the 10 years), the historical data for the pre-Lunar New Year rally is less conclusive (but the post-festival returns have actually been negative in seven of the last 10 years).

“Beyond January, we believe 2012 will be influenced by 2011 legacy issues. We thus continue to advocate a cautious stance, although we also recommend accumulating fundamentally-robust stocks on weakness for tactical plays with a longer-term view towards the recovery that will undoubtedly follow,” it said.

As for the stocks which could see trading interest on Thursday are hard-disk drive manufacturer JCY International Bhd, DIALOG GROUP BHD [], AIRASIA BHD [] and MALAYSIAN AIRLINE SYSTEM BHD [] (MAS).

JCY International Bhd, whose share price had surged in recent weeks, has stated that the group is likely to record a surge in earnings for the quarter ended Dec 31, 2011.

To cater for the increase in the component demands from the company’s major customers, JCY allocated RM300 million over the next 24 months period to expand its facilities in Malaysia, Thailand and China.

Dialog could also see trading interest as its rights shares go ex on Thursday.

In December, Dialog fixed the rights shares at RM1.20 each and the exercise price of the warrants at RM2.40 each.

The issue price would be a discount of about 46% to the theoretical ex-rights price of RM2.23 per share, based on the five-day volume-weighted average market price (VWAMP) up to Dec 14 of RM2.43.

Meanwhile, the Securities Commission has approved the proposed warrants exchange between AirAsia and MAS under a tie-up between both airlines. The airlines said the SC has approved the warrants exchange under the Capital Markets and Services Act 2007 of Malaysia.

Priceworth International Bhd’s unit has been appointed a contractor to carry out logging activities on Kolombangara Island, in the western province of Solomon Islands.

Priceworth said its unit, Ligreen (SI) Ltd had sealed a logging management and TECHNOLOGY [] agreement with Success Company Ltd to undertake the logging at a concession site measuring 1,053 ha.

KINSTEEL BHD [] had on Wednesday paid RM70 million to Perwaja Holdings Bhd which was the first payment for the subscription of the RCULS by Kinsteel. The balance of the RM210.0 million would be paid within 21 business days.

Following the first payment, Perwaja had provisionally allotted RM280.0 million nominal value of RCULS to Kinsteel.



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OSK maintains neutral view on the market

TEFD: What is your outlook for the Malaysian stock market and economy for 2012?
Eng: We remain neutral on the market as we see downside potential for the global economy and the Malaysian market.

What is your target for the FBM KLCI for 2012?
We maintain our 2012 fair value for the KLCI at 1,466 points.

How do you think the euro debt crisis will play out and what impact will it have on Malaysia?
I believe there is a high chance that Greece will eventually have to default. Whether it leaves the euro region at that point is still too difficult to say. Whether or not Greece defaults, a number of European countries should slip into recession in 2012 dampening global growth and trade and thus affecting Malaysia.

The years 2010-2011 were seen as years of merger and acquisition (M&A) activities, and the government’s Economic Transformation Programme (ETP). What do you see as the domestic theme for 2012?
For 2012, it will be the election and post-election Malaysia which could well see a rollback of subsidies and how Malaysian companies will need to increase their efficiency to cope with this.

If general elections are held in 2012, how do you expect the market to react, pre- and post-election?
We found that buying just before an election and exiting one month later is the most consistent strategy for the Malaysian market, especially since we feel that there is a strong chance of the ruling coalition improving on its 2008 poll performance.

Election trading strategy should be short and tight. As such, investors should: (1) wait for profit-taking ahead of the general election before entering the market; (2) buy just before the election date and ride on the positive post election sentiment; (3) exit about one month after the election; (4) focus on blue chips in the banking, oil and gas and construction sectors rather than on so-called “election plays”.

However, we caution that the longer the government waits to hold an election, the greater the uncertainty of the results.

What sectors do you like for 2012?
Consumer, telco and healthcare.

What sectors would you avoid in 2012?
Tech and auto.

What are your top stock picks and why?
AirAsia Bhd as it benefits from lower oil price and the IPO of an associate; Axiata Group Bhd is still the cheapest telco with room for capital management; Malayan Banking Bhd — cheap and liquid bank vs return on equity; Petronas Gas Bhd — defensive with growth catalyst in liquefied natural gas; Telekom Malaysia Bhd — boosted by Unifi; Dialog Group Bhd — defensive O&G with tank terminals as its catalyst; KPJ Healthcare Bhd — hospital chain still growing strongly with re-rating catalyst from Parkway Pantai’s listing; QL Resources Bhd — replicating Malaysia’s success in Indonesia and Vietnam; Media Chinese International Ltd — benefiting from falling newsprint prices; TRC Synergy Bhd — strong exposure to the ETP via the MRT project.

Your wish list for the year?
For a free and fair election regardless of the outcome. And for racist rhetoric to be made a crime.



This article appeared in The Edge Financial Daily, January 4, 2012.



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More capex to fuel O&G sector in 2012

The aggressive inflow of capital expenditure (Capex) into the development of marginal oil and gas (O&G) fields or enhanced oil recovery projects by Malaysian O&G players, is set to continue in 2012.

Over the past 12 months, national O&G entity, Petronas Bhd, has been busy boosting production not only to catch up with the previous year's higher output, but also achieve this more efficiently, said OSK Research.

The firm added that the national oil corporation's total O&G production had dropped to 2.1m boe/day in financial year 2011 from 2.3m boe/day previously,

"Hence, Petronas together with its production sharing contract (PSC) parties, has been progressively pouring Capex into the development of marginal O&G fields or enhanced oil recovery (EOR) projects.

"Both types of projects are expected to help it meet its higher O&G output objective in the shortest possible time and also at a lower production cost vis-a-vis the greenfields or more sophisticated fields," OSK Research said.

The research firm also predicts that more marginal oilfields will be awarded in 2012.

In 2011, Petronas awarded two clusters of marginal O&G fields, namely the Berantai cluster to Kencana and SapuraCrest, and the Balai cluster to Dialog Bhd.

These fields are fast-track projects that are expected to commence O&G production in one or two years, against the more sophisticated deepwater fields, which may take between three-five years to kickstart.

"Going forward, there are numerous new development opportunities, since Petronas intends to develop about 25 per cent of the 100 remaining marginal O&G fields identified," OSK Research said.

It added that given the exposure and experience, it will not be surprising if once again, Kencana, SapuraCrest and Dialog, are awarded the projects.

Also, next year, the focus on enhanced oil recovery (EOR) projects are slated to continue.

This is because the additional Capex needed to extract the remaining O&G is far less than that for a greenfield.

Recently, Petronas and Shell signed a Heads of Agreement for two 30-year production sharing contracts, involving EOR projects offshore Sabah and Sarawak.

OSK Research said the future growth of the sector is more likely to be via mergers and acquisitions.

"We think that growth through acquisitions or mergers is more likely compared to organic growth, as the O&G industry is becoming more dynamic.

"Companies are required to provide a complete range of services as well as deliver them reliably and in a timely manner.

"Petronas and its production sharing contract parties would rather place the main project responsibility on a single O&G contractor to get the entire job done, than award smaller portions to multiple contractors, which may give rise
to a risk of delivery delays and cost overruns.

"As such, we believe there may be a consolidation among the vessel players and brownfield services providers," the research house said. -- Bernama



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Dialog fuelling its ETP projects with a rights issue

Dialog Group Bhd (Dec 16, RM2.54)
Maintain outperform at RM2.44 with target price of RM3.64: Though the cash call and full warrant exercise could dilute our earnings per share (EPS) forecasts by up to 18% to 21% and knock 13% off our target price, it would not change our “outperform” call. We continue to value the stock at its sum-of-parts value.

Dialog has fixed the issue price for its one-for-five rights issue at RM1.20. The rights issue comes with free warrants on the basis of one-for-10 rights shares. The exercise price of the warrants has been set at RM2.40.

We were not surprised by the development as Dialog had announced the rights issue proposal on Aug 18 following the award of the Balai marginal field project on Aug 16. As at end-September this year, Dialog had RM92 million (4.6 sen per share) net cash. The cash call is expected to raise up to RM957 million (RM478 million from rights issue + RM478 million from full exercise of warrants). The proceeds will be used to fund the Balai project and the Pengerang tank terminal, which come under the Economic Transformation Programme (ETP).


We advise shareholders to subscribe to the rights given the steeply discounted rights price of RM1.20. The issue price represents a 46% discount to the theoretical ex-rights price of RM2.23, based on the five-day average of RM2.43. This fundraising exercise could enlarge Dialog’s share base by up to 30% from two billion (as at circular date of Oct 28) to 2.6 billion. We expect to reduce our FY12 ending June to FY14 EPS forecasts by 13% to 16% following the expected completion of the rights issue in February 2012. The warrants will expire in five years. Imputing RM957 million proceeds and a fully enlarged share base of 2.6 billion, we arrive at a fully diluted target price of RM3.18 compared with RM3.64 currently. — CIMB Research, Dec 16


This article appeared in The Edge Financial Daily, December 19, 2011.

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Dialog to bid for marginal field projects

Dialog Group
(Dec 15, RM2.44)

Maintain outperform with target price RM3.64: The investor meeting we arranged for Dialog’s management yielded a nice surprise — its aggressive plan to bid for two or three more marginal field contracts next year.

This exciting development comes hot on the heels of the award of the Balai marginal field contract in August.

We are thrilled with this latest development which could give Dialog additional sources of long-term earnings. We maintain our “outperform” call and continue to value the stock at its sum-of-parts (SOP), which does not factor in the new marginal fields.

Yesterday, we took Chew Eng Kar, Dialog’s executive director of corporate services, and Sue Ngau, manager of corporate services, to meet with 15 fund managers.

A pleasant surprise from the meeting was Dialog’s ambitious plan to bid for two or three more marginal field developments in CY12 after securing the 15-year Balai contract in August together with Petronas Carigali Bhd and Australia-based Roc.

The development cost for a marginal field is around US$500 million (RM1.6 billion) to US$1 billion and we understand that Dialog is vying for at least a 30% stake. Management assured that it will not make anymore cash calls to finance its marginal field venture other than the ongoing rights issue.

Slated for completion in Feb 12, the rights issue is expected to raise around RM500 million.

As at end-September, Dialog had RM92 million (4.6 sen per share) net cash.

We are encouraged by its hard-hitting marginal field strategy which will allow it to undertake more upstream works. The marginal field contracts add to Dialog’s earnings visibility and give it steady income streams in addition to the Balai contract, tank terminal concessions (Kertih, Tanjung Langsat and Pengerang) and a supply base (Jubail, Saudi Arabia).

Stay invested. We believe that things can only get more exciting for Dialog as it moves up the value chain. Already, the company is the sector’s biggest Economic Transformation Programme winner through the Balai contract and the Pengerang tank terminal. — CIMB IB Research, Dec 15

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