MBSB Research has maintained its BUY call on Dialog Group Bhd with a target price of RM2.57, saying the group’s newly awarded onshore oil concession in Thailand could provide a meaningful medium- to long-term earnings boost once commercial hydrocarbons are discovered.
Dialog’s 50.01%-owned indirect joint venture, Pan Orient Energy (Siam) Ltd (POES), was recently awarded the concession rights and operatorship for Block L8/66 by the Thai government, with a minimum work commitment of US$14.3 million, or about RM57.9 million.
POES will hold a 70% participating interest and act as operator, while CanAsia Energy Corp will own the remaining 30%.
MBSB said the block benefits from being adjacent to the existing producing L53/48 concession, which is also operated by POES. Block L8/66 had previously formed part of L53/48 before being relinquished under standard concession surrender rules.
According to the research house, the shared geology and existing knowledge of the subsurface should lower exploration risk. POES may also be able to leverage existing infrastructure, supply chains, operating bases and geological data, potentially reducing development lead times and unit capital expenditure.
MBSB said Dialog could also benefit from its integrated technical services model, as operatorship may allow engineering, procurement, construction and maintenance work to be channelled to the group’s own service divisions, creating earnings from both upstream production and internal service contracts.
However, the research house cautioned that risks remain, including the possibility of smaller or marginal discoveries, oil price volatility and foreign exchange movements involving the US dollar, ringgit and Thai baht.
MBSB expects no contribution to Dialog’s FY27 earnings from Block L8/66 as crude oil sales are unlikely during the initial development stage.
Should commercial hydrocarbons be established, however, the research house estimates the addition of the block could lift project net profit margins to as high as 35%, supported by the sharing of existing processing facilities, pipelines and logistics infrastructure with L53/48.
MBSB estimated Dialog’s minimum commitment to the project at about US$5 million, or RM22 million, which it expects can be funded through internal cash generation without additional debt.
The research house made no changes to its earnings forecasts pending confirmation of the first hydrocarbon discovery.
