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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
8 October 2010

Dialog Group Share Price


Fair Value
:
:
RM1.16
RM1.30
Exclusivity To Develop Pengerang Terminal 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

♦ Positive but not surprised. Yesterday, the company announced that the Issued Capital (m shares) 1,980.5
state government of Johor Darul Ta’zim had awarded it the exclusivity to Market Cap(RMm) 2,297.4
Daily Trading Vol (m shs) 4.6
develop an independent deepwater petroleum terminal at Pengerang,
52wk Price Range (RM) 0.889-1.19
Johor for a period of 60 years. We had already mentioned that the
Major Shareholders: (%)
Pengerang deepwater terminal is a near certainty as both the project and
Ngau Boon Keat 21.8
Dialog was in the spotlight during the “Economic Transformation
EPF 13.6
Programme” Open Day.
FYE Jun FY11 FY12 FY13
♦ Technical part of feasibility study completed. While one part of the EPS chg (%) - - -
study is done, there is still the commercial part of the feasibility study and Var to Cons (%) 19.2 38.6 59.0
the environmental impact assessment (EIA) to be completed. We believe
the two studies could take some time, and post that the actual PE Band Chart

construction of the tank terminal will be over 18-24 months, implying


contributions from the deepwater terminal to come in end of CY12 at the
PER = 42x
earliest. PER = 32x
PER = 22x
♦ Massive storage capacity. The Pengerang tank terminal is purported to PER = 11x

be approximately 5m m3 once fully completed, but we understand that it


will be built in phases. Phase One is expected to be 1-1.2m m3 of storage
capacity, and cost approximately RM1-1.2bn (based on a rule-of-thumb of
RM1k for every 1 m3). Relative Performance To FBM KLCI

♦ Risk. 1) Delay in contract awards for oil and gas projects the company has
Dialog Group
bid for; and 2) The commercial part of the feasibility study and the EIA
being unsuccessful.

♦ Forecasts. We maintain our forecasts as the approval does not have any
near-term financial impact as yet.
FBM KLCI

♦ Investment case. We are upbeat on Dialog’s prospects, hence we


maintain our Outperform call on the stock with unchanged SOP fair value
of RM1.30/share based on 15x FY06/11 PER for the core operating
business. Yap Huey Chiang
(603) 92802239
yap.huey.chiang@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2. Fair Value Calculation
Fair value (RMm) Valuation basis

Core operating businesses 1,675.8 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
2,568.3
Total (RMm)
Fair value (RM/share) 1.30
Source: RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions


FYE Jun (RMm) FY10* FY11F FY12F FY13F FYE Jun FY11F FY12F FY13F
E&C 390.0 350.0 300.0 300.0 EBITDA margins (%)
Specialist services 400.1 451.5 528.7 581.6 E&C 8.0 8.0 8.0
Plant maintenance svs 251.3 301.6 361.9 398.1 Specialist services 8.0 8.0 8.0
Catalyst handling 58.3 78.5 112.9 182.6 Plant maintenance services 15.7 15.7 15.7
TLP CTF 39.4 191.4 210.6 270.4 Catalyst handling 25.0 30.0 30.0
Turnover 1,139.1 1,373.1 1,514.1 1,732.6 Overall 18.6 21.5 23.3

EBITDA 122.3 255.5 325.4 404.1 Tanjung Langsat Port CTF


Margin (%) 10.7 18.6 21.5 23.3 - T1 capacity ('000 m3) 400 440 565
Depreciation (27.6) (45.9) (48.2) (59.0) - Rental/m3 (RM) 478.6 478.6 478.6
Interest inc./exp. 8.8 13.0 19.1 26.7
- Kertih (30%) 34.3 37.6 36.7 43.2 Source: Company data, RHBRI estimates
Pre-tax profit 151.0 260.2 333.1 415.0
Taxation (28.6) (44.5) (59.3) (74.4)
Effective tax rate (%) 20.0 20.0 20.0 20.0
Minorities (6.4) (41.1) (62.5) (85.7)
Net profit 116.1 174.6 211.3 255.0
Source: Company data, RHBRI estimates
* FY10 revenue breakdown is RHBRI estimates

IMPORTANT DISCLOSURES

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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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.

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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.

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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