KUALA LUMPUR: Terminals Langsat's expansion is expected to boost Dialog Group Bhd's recurring income stream while diversifying its terminal operations to cater for renewable fuel products, said Hong Leong Investment Bank Bhd (HLIB) Research.
The research firm said renewable fuel terminals typically command 30 to 50 per cent higher rates than their conventional counterparts.
Dialog on Monday announced that it will be expanding its storage facilities in Terminals Langsat, Johor, for an additional 150,000 cubic metres, dedicated for the storage of renewable and petroleum products.
Some 100,000 cubic metres are dedicated to EcoCeres Ltd., a subsidiary of Hong Kong-based EcoCeres Inc., while the balance 50,000 cubic metres are expected to be leased to third-party customers such as multinational companies and trading houses.
"Our calculations suggest that this expansion will contribute RM18.3 million and RM19.3 million to Dialog's earnings in financial years 2027 and 2028 (FY27/28).
"Based on a weighted average cost of capital (WACC) of 7.0 per cent, we arrive at a net present value (NPV) of RM224 million from this project, implying a 4.0 sen per share increment to the overall equity value of Langsat Terminals," said HLIB in a research note.
The research firm's assumptions include Dialog's capital expenditure of RM250 million, debt-to-eqequity ratio of 70 percent, S$8.5 per cubic metre with an annual step-up rate of 2 per cent and a blended utilisation rate of 95 per cent.
HLIB maintained the company's earnings forecasts as the contribution does not fall under the forecasts horizon.
It also keeps the 'buy' call with a slightly higher target price of RM3.04 from RM3.
"We like Dialog for its recurring income business model and its unique position in riding the future expansion of Pengerang via development of tank terminals.
"We look forward to the group securing new long-term dedicated storage tank terminal contracts for its Pengerang Deepwater Terminals (PDT) Phase 3 with approximately 500 acres available for future development," HLIB added.
At 10:22am, Dialog's share price traded 0.4 per cent or one sen higher, at RM2.37, with its market capitalisation standing at RM13.4 billion.