KUALA LUMPUR (Dec 22): Kenanga IB Research has maintained its “Outperform” rating on Dialog Group Bhd at RM1.47 with a lower target price of RM1.67 (from RM1.73) and said delays in its in-house EPCC jobs and projects and new capex intensive projects would be a drain on the company ‘s cashflows.

Last Friday, Dialog announced that its subsidiary had entered into a shareholders agreement with PRPC Utilities and Facilities Sdn Bhd (PRPCUF); Vopak Terminal Pengerang (VOPAK) and the Johor state government to set up a 25:40:25:10 special purpose vehicle, Pengerang Terminals (Two) (“PT-2”) for the development and construction of storage facilities for the Refinery and Petrochemical Integrated Development (“RAPID”) complex.

Kenanga IB Research said the Pengerang Terminal Phase 2 project involves the construction of c.2.1m cubic metres (m³) of storage capacity and a deepwater jetty with twelve berths at an approximate total project cost of RM6.3 billion. 

The research house said it was positive on the news as Phase 2 of Pengerang had been long awaited; albeit the shareholding being lower-thanexpected (initial thoughts were that it would be the similar 46%equity like Pengerang Phase 1). 

It said there would be 2 income streams from this agreement: i) the EPCC works; and ii) the recurring income stream from the storage tanks once the project starts.

“We have reduced our CY15 PER valuation for the core businesses to 15x (from 16x) in lieu of the weak sentiment of the oil and gas sector.

“We have ascribed a premium of 3x on sector average of 12x; largely as Dialog typically trades at a premium due to its long-term business model.

“Our changes and inclusion of the Pengerang Phase 2 results in a reduced CY15 SOP-based valuation to RM1.67 (from RM1.73).   Risks to our Call  (i) Delays in its in-house EPCC jobs and projects and new capex intensive projects which will be a drain on cashflows,” it said.