KUALA LUMPUR (July 7): CGS-CIMB Research sees upside potential in its discounted cash flow (DCF) valuation of Dialog Group Bhd’s Langsat 3 terminal at Tanjung Langsat, owing to its faster-than-expected expansion.
The group expects its new 85,000 cubic metre (m3) of clean petroleum tanks to be ready by the fourth quarter of FY2021, which is three to six months ahead of schedule, said analyst Raymond Yap in a note today.
This will raise total storage at Langsat 3 to 405,000 m3, from 300,000 m3 earlier, prompting the valuation upside.
He opined that the faster expansion was unsurprising, as Dialog is expected to capitalise on the current demand for onshore tank storage given the current oil glut.
Yap said Dialog has pointed out that its Langsat 3 terminal still has 17 acres of land area to build another 200,000 m3 of storage tanks over the longer term, bringing the total tank terminal capacity of its Langsat terminals to over 1 million m3.
“Dialog currently has 4.2 million m3 of tank terminal capacity, comprising 400,000 m3 of petrochemical storage tanks at Kertih, 476,000 m3 of clean tanks at Langsat 1, 171,000 m3 of clean tanks at Langsat 2, 120,000 m3 of clean tanks at Langsat 3, 1.73 million m3 of clean tanks at Pengerang Phase 1, and 1.3 million m3 of crude, clean and petrochemical tanks at Pengerang Phase 2.
“The capacity rises to 4.6 million m3 when including the 430,000 m3 BP Singapore clean tanks at Pengerang Phase 3 that will be fully constructed by mid-CY21F.
“The latest plan to expand Langsat 3 by 85,000 m3 represents an 11% expansion by volume, making Dialog the second-largest terminal owner-cum-operator in ASEAN, second only to Vopak. Once 85,000 m3 is constructed at Langsat 3 on top of the 120,000 m3 already operational and an additional 200,000 m3 is added in the future, Langsat 3 will expand to a total capacity of 405,000 m3, higher than Dialog’s initial guidance of 300,000 m3 due to land-use optimisation. Langsat 3 will be leased to medium-term customers for three to five years, we believe,” he said.
Yap expects Dialog to build an additional 570,000 m3 of crude oil tanks at the Pengerang Phase 1 project once Petronas’ RAPID refinery is operational, and an undisclosed volume of crude and clean storage tanks at Pengerang Phase 3 once new customers are secured.
He added that spot storage rates have held up into June and July, thus increasing profits at Dialog’s Pengerang Phase 1 and will help to offset the negative impact of lower oil prices on the profits of Dialog’s two oilfields.
Spot storage rates rose to above S$7 per m3 in April to May, from the S$6.50 to S$7 per m3 in its third quarter ended March 31, 2020 (3QFY20), from S$5.55 per m3 in its financial year ended June 30, 2019 (FY19).
Yap has maintained his “add” call and target price of RM5.23 on Dialog, with potential rerating catalysts including additional new tank terminal projects at Pengerang.
Shares in Dialog were trading up 1.05% or four sen at RM3.84 at 11.07am, valuing it at some RM21.43 billion. It saw some 2.43 million shares traded.