This article first appeared in The Edge Financial Daily on December 17, 2019
Dialog Group Bhd
(Dec 16, RM3.40)
Maintain outperform with an unchanged target price of RM4.15: Dialog Group Bhd has entered into a supplemental sales purchase agreement with Asia Energy Services Sdn Bhd to acquire a further 20% equity interest in Halliburton Bayan Petroleum Sdn Bhd at a purchase consideration of US$6.576 million (about RM27.2 million). After the acquisition, Halliburton Bayan Petroleum would become a 95%-owned subsidiary of Dialog.
Halliburton Bayan Petroleum is the independent technical service contractor for an oilfield services contract with a 24-year term or up to 2036 with Petronas Carigali Sdn Bhd, to enhance recoverable reserves from the Bayan field offshore Bintulu, Sarawak, via services such as production enhancement activities, oil development and prospect appraisal.
This acquisition follows Dialog’s acquisition in August 2019 of a 25% stake at US$8.22 million, bringing its total stake to 75%. As such, we are unsurprised that valuations used for the two acquisitions are identical at 8.5 times price-earnings ratio (PER) — greatly discounted compared with Dialog’s forward PER of some 35 times.
However, the impact on earnings is expected to be minimal, with the additional 20% stake estimated to contribute about RM3 million in earnings per year or below 1% of financial year ending June 30, 2020 (FY20) and FY21 earnings estimates. The acquisition also has a minimal impact on Dialog’s balance sheet, with a current net gearing of about 0.2 times.
Ultimately, given the minimal financial impact, we are neutral on the announcement, although we acknowledged the slight earnings and valuation accretions it could bring. The acquisition is also in line with Dialog’s overall strategy of balancing its business portfolio — upstream, midstream and downstream.
Our FY20 and FY21 numbers are unchanged. Nonetheless, we still like Dialog for its solid track record of earnings delivery, defensive earnings from its tank terminal businesses and the Phase 3 of Pengerang Deepwater Terminals acting as a main growth catalyst over the longer term. — Kenanga Research, Dec 16