DIALOG GROUP BHD
AMINVESTMENT Bank (AmInvest) has reiterated a “buy” rating on Dialog Group Bhd with a higher SOP-based fair value of RM2.50 per share.
This implied a calendar year 2018 (CY18) forecast price-earnings (PE) ratio of 34 times – 26% below its five-year average.
According to AmInvest, with the completion of the acquisition of an additional 36% stake in Tanjung Langsat tank terminals in Johor, the house raised its FY18-FY20 by 4%, as highlighted in its report dated Sept 26, 2017.
Dialog inked a share purchase agreement to acquire the remaining 45% equity stake in Centralised Terminals Sdn Bhd (CTSB) for RM137mil cash from MISC while assuming its RM56mil shareholder loan, which translated to a highly value-accretive acquisition PE of seven times as the acquisition was internally funded.
As such, Dialog, via CTSB, now directly owned an 80% stake in a total storage capacity of 647,000 cu m (directly owned by Langsat Terminal (LGT) 1 and 2), while Trafigura owned the remaining 20%. CTSB also owned a 100% stake in the currently dormant LGT 3.
Operational wise, since 2009, the existing tanks under LGT 1 and 2 were utilised on term contracts and strategically located near the busiest international shipping lane in Singapore, between the Middle East and Asia.
“Assuming that Dialog proceeded with expansion via LGT 3, we estimate that an 80% stake in an additional 380,000 cu m could add a further 10 sen or 4% to Dialog’s SOP.
“We remain positive on this value-accretive acquisition, which also expands its equity ownership and assumes control of the existing tank terminals built by the group, while enabling faster decision-making for Langsat 3 expansion,” the house noted.
Dialog now trades at a CY18 forecast PE of 28 times, below its five-year average of 46 times.
The house viewed the premium valuation as justified given Dialog’s sustainable recurring cash flow-generating businesses, which were largely cushioned from volatike crude oil price cycles.
This is further underpinned by the Pengerang development’s multi-year value expansion.