Two thumbs up for Dialog’s increased stake in Langsat tank terminals
KUCHING: Analysts unite in their optimism over Dialog Group Bhd’s (Dialog) acquisition of the remaining 45 per cent interest in Centralised Terminals Sdn Bhd (CTSB) from MISC Bhd (MISC).
CTSB owns an 80 per cent stake in Langsat Terminal (One) Sdn Bhd (LT1) and Langsat Terminal (Two) Sdn Bhd (LT2).
On Monday, Dialog announced that on 25 September 2017, the company has entered into a Share Purchase Agreement with MISC Bhd (MISC) to acquire the remaining 45 per cent interest in the jointly controlled CTSB for purchase consideration of RM137 million for 4.5 million ordinary shares of CTSB from MISC, and 10,800 redeemable preference share (RPS) of CTSB from MISC.
Dialog will repay MISC and take over its portion of shareholders’ loan to CTSB, including principal and accrued interest, amounting to RM56 million.
Following the acquisition, Dialog’s effective stake in LT1 and LT2 will be increased to 80 per cent from 44 per cent given that CTSB owns an 80 per cent-stake in these two terminals with the remaining 20 per cent owned by Trafigura, one of the largest oil independent traders.
Recall that both terminals have cumulative 647,000 cubic metres of storage capacity with 30 years concession, expiring in 2037.
Kenanga Investment Bank Bhd ( Kenanga Research) was positive on the acquisition as it allows Dialog to generate higher stable recurring income from the existing two terminals as well as to potentially accelerate expansion of Langsat Terminal 3, although no details have been firmed up at this juncture.
“Given the average earnings from a net 45 per cent stake to MISC is circa RM10 million per annum, the RM137 million purchase consideration translates to a price earnings ratio of 13.7 times which is in line with global tank terminal transactions,” Kenanga Research opined.
The transaction is expected to be completed by 4QCY17 and fully financed through internal funds. The firm raised Dialog’s expected core net profits for FY18 and FY19 marginally by two per cent to RM396.6 million and RM409.9 million, respectively, following the increase of effective stake in the terminals.
MIDF Amanah Investment Bank Bhd (MIDF Research) saw that currently, Dialog is in a net cash position with a cash hoard of RM1.43 billion as of June 30, 2017.
With the proposed acquisition totalling RM193 million -- assumed funded by bank borrowings -and the consolidation of CTSB’s outstanding loans, Dialog’s financial position will shift from a net cash position to a net debt position with a net gearing ratio of approximately 0.1 times.
“This would imply that Dialog will need to take on an additional RM315m in borrowings,” it said in a separate report.