KUALA LUMPUR (Aug 5): After falling more than 30% from its previous high, Hong Leong Investment Bank (HLIB) Research opined that Dialog Group Bhd's stock is currently undervalued, adding that the oil and gas (O&G) company’s recurring income is expected to improve with the commencement of Pengerang Deepwater Terminals (PDT) Phase 3A and Langsat 3.

The counter — trading at RM2.64 this morning — was 31.78% lower than its one-year peak of RM3.87 in November 2020. 

HLIB analyst Low Jin Wu in a note today maintained the research house's "buy" call on Dialog with an unchanged target price (TP) of RM3.45 as he believes there is now a good opportunity to buy into Dialog.

“We believe that growth in its recurring income through its tank-terminal business is enough for us to warrant a 'buy' call on the stock,” he said.   

Low recently participated in a conference call with the management of Dialog and he remained positive on the company.

This, he said, was due to potential growth in its recurring income from the completion of PDT Phase 3A and Langsat 3 expansion despite expectations of lower revenue due to lack of large-scale engineering, procurement, construction and commissioning (EPCC) projects.

Low added that Dialog had already seen a pickup in activities from customers as its refinery and petrochemical integrated development (RAPID) terminals are ready to be operational.

As for Pengerang Terminals (Two) Sdn Bhd (PT2SB), he said, the company is looking to add more tanks to the facilities at the request of customers.

According to Low, Dialog is also working and talking to various parties for the expansion of Phase 3A as the common infrastructure dedicated to Phase 3A is ready along with its Jetty 3.

While Dialog would continue to expand Langsat 3 if there are requests for offtake from customers, Low expects delays with regard to the timeline of expansion right now due to the movement control order (MCO) imposed in Malaysia.

According to Low, Dialog has been affected by the lockdown measures imposed despite being classified as an essential service as supply has been disrupted due to the travel restrictions.

He said the group is currently operating at about 60% capacity to ensure that all the necessary standard operating procedures (SOPs) are in place.

Having said that, Dialog believes that it is still on track for the completion of most of its projects, the analyst said.

He also noted that there had been two rounds of salary cuts for senior management and one round of salary cuts for mid-level management of the company since the Covid-19 pandemic began.

The company's offices are also currently at less than 20% capacity and it is currently in discussions with customers to share some of the unforeseen costs, Low added.

He also pointed out that Dialog is working towards participating in clean energy in New Zealand as the country is at the forefront of working towards carbon neutrality as it is no longer giving offshore permits for O&G.

The group sees wind energy as a potential avenue as New Zealand is geographically strategic for production of wind energy, the analyst said.

According to him, Dialog is also looking at other countries to expand its green energy footprint.

The company would also explore opportunities to become an asset owner for renewables, following its build-operate-transfer (BOT) projects like its tank terminal business, Low said.

At the time of writing today, Dialog had risen five sen or 1.93% to RM2.64, valuing the group at RM14.62 billion.