PETALING JAYA: Kenanga Investment Bank has maintained its “outperform” call on Dialog Group Bhd which is getting a boost from its new midstream tank terminal business from Australian and New Zealand oil importers, and improvement in its earnings before interest, taxes, depreciation and amortisation (Ebitda) margins.
In a note today, its analyst Kylie Chan also said the group’s midstream tank terminal segment is thriving, evident in utilisation rates surpassing 90%, compared to 70-80% historicallly.
The company’s independent terminals are experiencing strong spot rates, exceeding S$6 (RM20.40) per cubic metre.
“The surge in demand is partly driven by Australian and New Zealand oil importers that use Dialog’s terminals in Pengerang, Johor,” said Chan.
Australia’s refining capacity was reduced by over 50% post pandemic, due to the shutdown of the Altona (capacity of 90,000 barrels per day) and Kwinana (capacity of 138,000 barrels per day) refineries.
In 2021, Marsden Point, the only refinery in New Zealand with a capacity of 96,000 barrels per day, underwent conversion into an import terminal. Consequently, both nations have increased imports of refined oil products to address the supply deficit.
“This, in turn, benefits Dialog as traders utilise its storage tanks for fuel products bound for Australasia,” she said.
Over the last two quarters, profitability for downstream agreements has steadied, primarily attributed to the gradual fulfilment of older contracts that did not account for increased expenses stemming from the present inflationary landscape.
The analyst said the group achieved its highest Ebitda margins of 44% after the pandemic began in the second quarter of the fiscal year 2021 (Q2 FY2021), but these margins declined consistently, hitting a low point of 14% in Q2 FY2023.
This drop was attributed to disruptions in the group’s customers’ and suppliers’ operations due to the pandemic and supply chain challenges arising from the Ukraine-Russia conflict.
“As a result, this had led to cost overruns and project losses due to higher material price and labour costs, and delays emanating from manpower constraints,” said Chan.
However, the group has provided reassurance that margins have made a positive turn, attributed to the anticipated conclusion of previous contracts by end of fiscal year 2024 (FY 2024).
An example is the upcoming decision to activate the extension option on Petronas’s five-year umbrella contract for plant turnaround and maintenance, scheduled for execution, next year.
Ambitious growth strategies
Meanwhile, the group continues to make progress with its ambitious growth initiatives in Pengerang and Tanjung Langsat, Johor, driven by the development of new oil and gas infrastructure at the Pengerang Energy Complex (PEC), and increasing interest in sustainable product storage solutions.
“The group is currently courting customers to enter into long-term (at least 10 years) offtake agreements for dedicated storage in Pengerang,” said the analyst.
“They include existing client, BP Singapore, new investors at the PEC, or international energy traders (e.g. Vitol, Trafigura, Vopak).
“As such, we believe there will be potential interest from new investors at the PEC,” said Chan adding these included Singapore-based ChemOne and China-based Rongsheng Petrochemical Co, Ltd.
Nonetheless, Rongsheng has made a substantial investment commitment of up to RM80 billion for a refining facility in Pengerang, while ChemOne aims to initiate its project worth US$4 billion (RM18.3 billion) at the PEC.
Rongsheng is a China-based company principally engaged in research, development, manufacturing and distribution of refining products, petrochemicals and chemical fibres.
Dialog’s share price closed 5 sen or 2.25% higher at RM2.27, valuing the group at RM12.82 billion.