KUALA LUMPUR: Hong Leong Investment Bank (HLIB) has maintained its forecast and reiterated a buy call on Dialog Group Bhd, raising its target price to RM3.00 from RM2.77 previously, after revisiting assumptions for its midstream terminals and the Pengerang Phase 3 expansion.
Dialog's recurring income business model and its unique positioning to benefit from future expansions at Pengerang through the development of tank terminals make it an attractive investment.
"We anticipate the group will secure new long-term dedicated storage tank terminal contracts for its Pengerang Deepwater Terminal (PDT) Phase 3, with approximately 500 acres available for future development," it said in a note today.
HLIB said that the group's management has guided that the 24,000 cbm renewable fuel tanks at Langsat Phase 3 will be completed by end-CY24 and fully operational in CY25.
The additional 200,000 cbm capacity for renewable fuel storage at Langsat is undergoing feasibility studies and is expected to reach FID in CY25, said the research house in a note today.
The rates for renewable terminals are 30–50 per cent higher than conventional terminals, although the Internal Rate of Return (IRR) remains in the low teens due to higher capital expenditure requirements.
As for downstream, HLIB said the plant maintenance MSA with Petronas is running at renewed rates, though its contribution is only slightly positive to its plant maintenance profitability.
"We believe Pengerang Phase 3 will finally secure leases from customers in 2025," it added.
Dialog is likely to allocate most of its Engineering, Procurement, Construction, and Commissioning (EPCC) resources to internal projects in the coming years as it undertakes terminal expansions in Langsat and Pengerang.
Dialog's midstream operations have largely remained stable, with utilization rates exceeding 90 per cent and rates holding steady at SG$6.50 per cbm.
Meanwhile, the development of Pengerang Phase 3 is expected to secure leases from customers in 2025, with ongoing discussions involving several parties.
Unlike most of its existing terminals, where Dialog holds a joint venture or associate stake, Pengerang Phase 3 terminals will be consolidated as a majority-owned subsidiary of Dialog.