Following the slump, there are plenty of cheap(er) valuations but which to follow. The money will always follow the big money. Speculative stocks (i.e. syndicate controlled) will be hard pressed until the broader market recovers. Big money means, big funds, what would they be looking at. They will scan all available research, maybe stay away from GLCs for the time being with elections so near. Looking for a lot of comfort on the upside and downside. Plus there must be sufficient liquidity.
Dialog ticks all boxes. Target prices set by most houses are close to RM3.00 after having scan recent reports (issued over last 2 weeks). Its now at 30% discount to NAV, a pretty safe range considering its average discount was closer to 14%. great liquidity.
Key potential catalysts besides the above: additional capacity (end user) at Tanjung langsat; and EPCC contract from Petronas' RM60bn Rapid project.
Dialog Group Bhd (Dialog), an oil and gas industry player, announced that its subsidiary Dialog Engineering & Construction Sdn Bhd (DECSB) had signed an engineering, procurement, construction and commissioning (EPCC) contract and alliance agreement with Pengerang Independent Terminals Sdn Bhd (PITSB).
A research report by OSK Research Sdn Bhd (OSK Research) indicated that the job scope estimated at RM1.9 billion included provision of the EPCC on an alliancing basis for the first phase of the independent deepwater petroleum terminal at Pengerang, Johore, and was expected to be completed by 2014.
The report quoted, “PITSB is a special purpose vehicle which will be 90 per cent owned by Pengerang Terminals Sdn Bhd (PTSB) and the balance 10 per cent owned by the State Secretary of Johore. PTSB is the joint venture company between Dialog and Vopak, with 51 per cent and 49 per cent ownership respectively.
DECSB, on the other hand, had successfully built a tank terminal, including terminal facilities in Kertih, Terengganu and Tanjung Langsat, Johore,” the report added.
There would be three phases of development and the deepwater petroleum terminal would ultimately have a total capacity of five million cubic meters and six vessel berths. The entire terminal would be on contiguous onshore and seabed land between Tanjung Ayam and Tanjung Kapal, Pengerang.
There would also be a harbour port, jetty and other marine facilities with water depth of up to 26 metres, which would facilitate the handling ultra large crude carriers (ULCCs) and very large crude carriers (VLCCs).
This terminal would be used for handling, storage, processing and distribution of crude oil, petroleum, petrochemicals and other chemical products.
Dialog was in a net cash position of RM282 million as at Mar 31, 2011. Dialog had yet to determine the ratio for these two means of financing. OSK Research did not think there would be high borrowings since the RM1.9 billion cost would be spread over a period of three to four years.
Also, with the EPCC job awarded back to Dialog’s 100 per cent subsidiary, DECSB, the cash would ultimately flow back to the group. The job award was regarded as being in line with management guidance of its EPCC division securing about RM500 million worth of contracts per annum.
The research house continued to regard the company as one of the most defensive oil and gas stocks in its sector, and one that possessed a steady business model as well as being in a net cash position.
Furthermore, the analyst opined that as Dialog constructed and managed more terminals, it would be enjoying more recurring income and good cash flow as well.
Based on a sum-of-parts valuation, the research pegged fair value for the company at an unchanged at RM3.12 per share.
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