KUALA LUMPUR: Dialog Group
’s RM100mil investment to expand its Langsat tank terminal capacity, which was faster than CGS-CIMB Equities Research’s forecast, has prompted the research house to maintain its Add call and sum-of-parts target price of RM5.23. Last traded price was RM3.73.
It was reported that Dialog will invest RM100mil to expand its unit Langsat terminals by a further 85,000 cubic metres (cbm) of clean petroleum tanks, on top of the existing 767,000 cbm capacity that has been fully leased out. Dialog also told the press that the Langsat 3 terminal still has 17 acres of land area available to build another 200k cbm of storage tanks over the longer term, taking the total Langsat tank terminal capacity to over 1m cbm.
“The news was not a surprise to us as we had expected Dialog to capitalise on the robust global demand for onshore tank storage due to the current global oversupply of oil despite OPEC+ production cuts. Dialog currently has 4.2 million cbm of tank terminal capacity, including petrochemical storage tanks at Kertih, clean tanks at Langsat 1 to 3, clean tanks at Pengerang Phase 1, and crude, clean and petrochemical tanks at Pengerang Phase 2.
“The capacity rises to 4.6 million cbm when including the 430,000 cbm BP Singapore clean tanks at Pengerang Phase 3 that will be fully constructed by mid-CY21F.
“The latest plan to expand Langsat 3 by 85,000 cbm represents an 11% expansion by volume, making Dialog the second-largest terminal-owner-cum-operator in Asean, second only to Vopak.
“Once 85,000 cbm is constructed at Langsat 3 on top of the 120,000 cbm already operational and an additional 200,000 cbm is added in the future, Langsat 3 will expand to a total capacity of 405,000 cbm, higher than Dialog’s initial guidance of 300,000 cbm due to land use optimisation,” it said.
Langsat 3 will be leased to medium term customers for three to five years, it believes.
“Our DCF valuation of Langsat 3 has upside as 1) we had assumed 85,000 cbm expansion from mid-CY22F so Dialog’s 4QCY21F target start date is three to six months ahead of our forecast, and 2) we had capped Langsat 3 at 300,000 cbm but the new capacity guidance is now for 405,000 cbm in total.
“Apart from Langsat, we expect Dialog to also build additional 570k cbm of crude oil tanks at Pengerang Phase 1 once the Petronas RAPID refinery is up and running and an undisclosed volume of crude and clean storage tanks at Pengerang Phase 3 once new customers are secured.
“Separately, we understand that spot storage rates that rose from c.S$5.55/cbm in FY19 to S$6.50-7/cbm in 3QFY20 and to above S$7/cbm in April-May have held up into Jun-Jul, which will increase profits at Dialog’s Pengerang Phase 1 and help to offset the negative impact of lower oil prices on the profits of Dialog’s two oilfields,” it said.
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