PP 7767/09/2011(028730)

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
MARKET DATELINE
7 October 2010

Dialog Group Share Price

Fair Value
:
:
RM1.13
RM1.30
Contract Awarded Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (DIALOG; Code: 7277) Bloomberg: DLG MK

Net EPS Net
FYE Turnover Profit EPS# Growth PER C.EPS* P/NTA P/CF Gearing ROE GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%) (%)
2010 1,139.1 116.1 5.9 10.8 19.3 4.5 16.9 (0.5) 24.5 2.9
2011f 1,373.1 174.6 8.8 50.4 12.8 7.4 3.7 11.7 (0.7) 31.2 4.3
2012f 1,514.1 211.4 10.7 21.1 10.6 7.7 3.1 9.8 (0.9) 31.4 5.2
2013f 1,732.6 255.0 12.9 20.6 8.8 8.1 2.6 8.2 (1.1) 31.5 6.3
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

♦ BCOT awards. Yesterday the company announced that it had been awarded Issued Capital (m shares) 1,980.5
an EPCC contract valued at RM60.7m from Petronas Carigali (PCSB) for a Market Cap(RMm) 2,238.0
Daily Trading Vol (m shs) 4.5
new condensate tank and associated facilities for Bintulu Crude Oil Terminal
52wk Price Range (RM) 0.87-1.19
(“BCOT”). The company will start on the project immediately, while
Major Shareholders: (%)
completion is expected within 20 months.
EPF 13.6
♦ EPCC win positive. This is Dialog’s second win for the year and it lifts Azam Utama 11.2
Wide Synergy 10.6
cumulative wins to RM95m. We expect the contract to fetch EBITDA earnings
of at least RM4.8m based on our EBITDA margin assumption of 8% for EPCC FYE Jun FY11 FY12 FY13
contracts. The first win was in May, from Chiyoda Singapore for Phase 1A of EPS chg (%) - - -
the Stolthaven Singapore Development Project (SG$15m). Var to Cons (%) 19.2 38.6 59.0

♦ Pengerang deepwater terminal, a near definite. Dialog was in the PE Band Chart
spotlight during the “Economic Transformation Programme” Open Day held in
September, as it was highlighted as one of the companies that would PER = 42x
PER = 32x
spearhead the Government’s aim of turning Malaysia into a regional oil PER = 22x
storage and trading hub by 2017. We understand that the storage capacity PER = 12x

of Pengerang could be around 10x that of the Tanjung Langsat terminal. As

such, once it takes off it will take Dialog to a whole new playing field. At this
juncture, the project is still undergoing the EIA study.

♦ Risk. 1) Crude oil price volatility that would lead to lower margins for Relative Performance To FBM KLCI
recurrent downstream specialist services; 2) Delay in contract awards for oil
and gas projects the company has bidded for; and 3) Failure to get approval
for the Pengerang Terminal project. Dialog

♦ Forecasts. We leave our forecasts unchanged for now as we have already

incorporated about RM120-150m new contracts for FY11. We however
introduce FY13 earnings assumptions which incorporate a 20.6% increase in FBM KLCI
net earnings mainly on the back of earnings accretion from the Tanjung
Langsat terminal’s current expansions. At present, 400,00m3 is up and
running, while work is ongoing to raise capacity by another 250,000m3. For
FY13, we assume all of Phase 2 (80,000m3) is operational while half of
Phase 3 (170,000m3) is completed.

♦ Investment case. The company remains our favourite of the sector given
its conservative and asset-light strategy. Moreover, it is the leading tank Yap Huey Chiang
terminal player in Malaysia. We maintain our Outperform call on the stock (603) 92802239
with unchanged SOP fair value of RM1.30/share based on 15x FY06/11 PER yap.huey.chiang@rhb.com.my
for the core operating business.

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 Table 2. Fair Value Calculation
Fair value (RMm) Valuation basis
1,675.8
Core operating businesses 15x FY06/11 PER, premium to the target sector benchmark of 13x
Add: Kertih NPV (30%) 362.9 DCF based on WACC of 14.5%
529.2
Add: TLP CTF NPV DCF based on WACC of 15% including additional risk premium for start-
up risks
Add: FY10 net cash 0.4

Total (RMm) 2,568.3

1.30
Fair value (RM/share)
Source: RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Jun (RMm) FY11F FY12F FY13F FYE Jun FY11F FY12F FY13F
E&C 350.0 300.0 300.0 EBITDA margins (%)
Specialist services 451.5 528.7 581.6 E&C 8.0 8.0 8.0
Plant maintenance svs 301.6 361.9 398.1 Specialist services 8.0 8.0 8.0
Catalyst handling 78.5 112.9 182.6 Plant maintenance services 15.7 15.7 15.7
TLP CTF 191.4 210.6 270.4 Catalyst handling 25.0 30.0 30.0
Turnover 1,373.1 1,514.1 1,732.6 Overall 18.6 21.5 23.3

EBITDA 255.5 325.4 404.1 Tanjung Langsat Port CTF

Margin (%) 18.6 21.5 23.3 - T1 capacity ('000 m3) 400 440 565
Depreciation (45.9) (48.2) (59.0) - Rental/m3 (RM) 478.6 478.6 478.6
Interest inc./exp. 13.0 19.1 26.7
- Kertih (30%) 37.6 36.7 43.2 Source: Company data, RHBRI estimates
Pre-tax profit 260.2 333.1 415.0
Taxation (44.5) (59.3) (74.4)
Effective tax rate (%) 20.0 20.0 20.0
Minorities (41.1) (62.5) (85.7)
Net profit 174.6 211.3 255.0
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

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Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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