Dialog Group Berhad: Leveraging on Positive Sustainable Fuel Demand Trends
7277 | DLG MK | Energy | Energy Infrastructure, Equipment & Services
DEVELOPMENT
- Dialog Group (Dialog) had announced that its 25% indirectly owned JV company, Pengerang Terminals (Two) Sdn. Bhd. (PT2SB) has signed a Terminal Usage Agreement (TUA) with Pengerang Biorefinery Sdn. Bhd (PBSB), to provide storage and handling facilities for PBSB’s feedstocks and products.
- PT2SB will expand and develop a storage capacity of about 272kcbm dedicated to PBSB at a total investment of approximately USD330m including costs associated with shared facilities at the terminal, by a 25-year long-term take-or-pay TUA.
- The biorefinery will have the capability to process about 650kTpa of raw material to produce Sustainable Aviation Fuel (SAF) and other biofuels such as Renewable Diesel/ Hydrogenated Vegetable Oil (HVO).
OUR VIEW
- Stable long-term revenue stream. The long-term TUA guarantees a predictable and stable income for PT2SB, regardless of whether PBSB utilises the full storage capacity. The project also increases PT2SBs physical assets and diversifies its capabilities handle feedstocks and products related to biofuels, capitalising on the growing global demand for renewable energy and sustainable fuels in line with Dialog’s and Malaysia’s sustainability strategies.
- Strengthening synergies and efficiency. The project further solidifies the relationship with key industry players, including Petronas, which can potentially lead to more future collaborations in the sustainable fuel industry. The new expansion can also leverage on existing facilities, management and operational expertise. This could help in reducing the overall operational costs and improve the project’s profitability.
- External, internal challenges persist. We noted certain downside risks to this project, which includes: (i) funding of project in the long-term, (ii) operational stability of the biorefinery, (iii) market and regulatory shifts, and (iv) execution risks (potential delays, cost overruns etc.). We also noted that, given the long-term nature of the project, technological obsolescence may occur, as the energy sector may be undergoing rapid technological changes and advancements within that timeline. This could impact the long-term demand for the products from and services of the biorefinery.
- Maintain POSITIVE for the long run. Nevertheless, we are optimistic on Dialog’s position to mitigate these risks, through careful financial planning (contingency budget for unforeseen cost overruns) and risk transfers (volume risk will be transferred to PBSB). The adherence of the project to global trends and Malaysia’s appetite for green fuel solutions give Dialog the potential leverage to execute the project successfully, strengthened by its expertise in such large-scale operations.
- Considering that this project is long-term, we make no changes to our earnings estimates for Dialog. We are expecting impact from this project on yearly earnings to be approximately 2%-5% at this juncture. Pending further updates on this project and its upcoming earnings results, we maintain our BUY call for with a target price of RM1.85.
INVESTMENT STATISTICS
Annual Standardized Year end June
| 2023A | 2024A | 2025E | 2026F | 2027F | |
|---|---|---|---|---|---|
| Revenue | 3,151.9 | 2,590.1 | 2,739.6 | 2,836.3 | 2,886.3 |
| EBIT | 434.1 | 160.1 | 309.6 | 331.3 | 331.3 |
| PBT | 679.1 | 336.5 | 486.0 | 508.0 | 508.3 |
| Taxation | -73.8 | -47.9 | -32.1 | -22.5 | -15.7 |
| PAT | 605.4 | 288.5 | 453.9 | 485.5 | 492.6 |
| MI | 30.3 | 3.0 | 0.6 | 0.2 | 0.1 |
| PATAMI | 575.0 | 291.6 | 454.5 | 485.7 | 492.7 |
| Core PATAMI | 594.9 | 166.6 | 474.5 | 505.7 | 512.7 |
| EPS (sen) | 10.2 | 5.2 | 8.0 | 8.6 | 8.7 |
| PER (x) | 18.6 | 35.9 | 23.0 | 21.5 | 21.2 |
| DPS (sen) | 4.3 | 2.0 | 2.8 | 3.0 | 3.0 |
| Dividend yield (%) | 2.3 | 1.1 | 1.5 | 1.6 | 1.6 |
Source: Company, MBSBR
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MBSB INVESTMENT BANK (formerly known as MIDF Amanah Investment Bank): GUIDE TO RECOMMENDATIONS
STOCK RECOMMENDATIONS
- BUY
- Total return is expected to be >10% over the next 12 months.
- TRADING BUY
- The stock price is expected to rise by >10% within 3 months after a Trading Buy rating has been assigned due to positive news flow.
- NEUTRAL
- Total return is expected to be between -10% and +10% over the next 12 months.
- SELL
- Total return is expected to be <-10% over the next 12 months.
- TRADING SELL
- The stock price is expected to fall by >10% within 3 months after a Trading Sell rating has been assigned due to negative news flow.
SECTOR RECOMMENDATIONS
- POSITIVE
- The sector is expected to outperform the overall market over the next 12 months.
- NEUTRAL
- The sector is to perform in line with the overall market over the next 12 months.
- NEGATIVE
- The sector is expected to underperform the overall market over the next 12 months.
ESG RECOMMENDATIONS* – source Bursa Malaysia and FTSE Russell
- ☆☆☆☆
- Top 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell
- ☆☆☆
- Top 26-50% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell
- ☆☆
- Top 51%-75% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell
- ☆
- Bottom 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSE Russell
* ESG Ratings of PLCs in FBM EMAS that have been assessed by FTSE Russell in accordance with FTSE Russell ESG Ratings Methodology
