CGSCIMB expects Dialog’s quarterly results in the current FY24F to perform better than in FY23 for several reasons.
“First, upstream earnings could be boosted in future quarters from higher production from the Bayan field. From Jul 2023, the TSeven Elise Mobile Offshore Production Unit (MOPU) began operations at the Bayan field,” said CGSCIMB in the recent Company Flash Note.
The MOPU is leased by T7 Global to Petronas Carigali for 10 years, and the MOPU has the capacity to process and export up to 100 mmscfd of gas to the Bintulu LNG liquefaction facility.
The higher production of gas benefits Dialog Bayan Petroleum (DBP) from 1QFY6/24F, because as the Oil Services Contractor (OSC), DBP benefits from incremental oil and gas production above the benchmark.
Second, Dialog is in the midst of completing its legacy EPCC projects, some of which are loss-making due to cost escalation. For this reason, Dialog’s 4QFY23 core earnings before interest, tax, depreciation and amortisation rose 12% qoq despite a 14% qoq fall in revenue due to the completion of certain EPCC projects.
Dialog expects all legacy projects to be completed in the next 6-9 months. Moving forward, Dialog is positioning itself as a premium EPCC contractor with higher price quotations, but also with strong reputation for delivering projects to its clients.
“As legacy EPCC projects complete and as Dialog takes on new, higher-margin EPCC work, it should see earnings before interest, tax, depreciation and amortisation improve in future quarters, in our view,” said CGSCIMB.
Third, for the midstream tank terminal business, Dialog noted that the qoq drop in share of JV results in 4QFY23 to RM82m was due to unrealised forex translation loss at one of the JV terminals due to the sharp qoq appreciation of the US$ against ringgit.
Dialog does not expect this to repeat in 1QFY24F, and hence quarterly share of tank terminal JV results should revert to the 3QFY23 level of RM100m.
In addition, the independent tank terminal utilisation remains above 90% and spot rates remain above S$6/cbm/month. There has not been any negative impact so far from Saudi Arabia’s and Russia’s crude oil production and export cuts in Jul-Aug 2023.
Fourth, Dialog will have an opportunity to renegotiate higher manpower rates for the umbrella plant maintenance contract with Petronas, once the current contract expires on 30 Jun 2024. A new contract will take effect from 1 Jul 2024F, according to Dialog.
Dialog continues to be in discussions with various potential customers for new tank terminals at Pengerang Phase 3 and is actively assisting them to push their refinery projects towards final investment decision.
“Based on publicly available information, we believe that ChemOne is far ahead of Rongsheng Petrochemical in terms of preparations to set-up their respective refineries at Pengerang,” said CGSCIMB.
CGSCIMB is unclear if water supply in Johor broadly and Pengerang specifically will be sufficient to serve the needs of ChemOne, Rongsheng and future refineries.
In May 2016, Petronas completed the Projek Air Mentah RAPID (PAMER) to supply 260m litres per day of raw water to the Pengerang Integrated Complex (PIC), as well to cater for future growth in PIC.
“We think that it may be ultimately necessary for the potential new refineries to invest in new raw water and treated water facilities to cater to their requirements,” said CGSCIMB.
If these refinery projects take off, Dialog’s EPCC arm can also bid for additional construction projects. Dialog previously executed some EPCC packages for the construction of the Petronas RAPID refinery, i.e. the piping works; hence, we think that Dialog may also bid for the EPCC contracts to build certain packages for the future refineries.
Downside risks include the potential for EPCC losses to drag on for longer, and for independent tank storage rates and utilisation to weaken if aggressive OPEC+ production cuts extend beyond Sep 2023.
