It is difficult to write about local oil-and-gas (O&G) stalwart Dialog Group Bhd and not come across as sounding overly bullish on its prospects.
With a market capitalisation in excess of RM16 billion, up from RM55 million in 1996, and businesses spread out in the provision of technical services in all sectors from upstream to downstream, Dialog is among the largest O&G companies in Malaysia.
Of the 18 analysts who cover Dialog’s stock, 17 have “buy” calls, while the odd one out is calling a “hold”.
Dialog’s strengths include engineering, procurement, construction and commissioning (EPCC), plant maintenance, fabrication and tank terminal operations. It has a 20% participating interest in a Production Sharing Contract for three oilfields off the Sarawak coast up to 2034, and wholly owns Dialog Bayan Petroleum Sdn Bhd, which has an oilfield services contract until 2036.
The company’s RM700 million investment in tank terminal facilities provides a strong growth catalyst. Its operations include a 30% stake in Kertih Centralised Tankage Facilities, the three wholly-owned Langsat Terminals, a 46% stake in Pengerang Deepwater Terminal, 25% in Pengerang Terminal 2 and 25% in Pengerang LNG Facilities.
Analysts reckon Dialog’s stake in Pengerang Phase 3, the first phase of which was launched in April, to be between 25% and 49%.
With such choice assets, it is no wonder that Dialog bags the accolades not only for the highest return on equity (ROE) over three years, but also the highest growth in profit after tax over the same period in the energy sector. This is also the second consecutive year of its registering the highest profit-after-tax growth in the sector.
Dialog’s three-year weighted ROE beginning from the financial year ended June 30, 2018 (FY2018) was 15.5%. Its annual ROE rose from 15.4% in FY2018 to 15.9% after three years.
It had a 19.4% three-year profit after tax compound annual growth rate beginning from FY2017. Net profit has trended upward, from RM370.6 million in FY2017 to RM510.4 million, RM535.8 million and RM630.4 million in the next three financial years.
As at end-September 2021, Dialog had RM1.47 billion in cash and cash equivalents, RM362.28 million in short-term debts and RM1.6 billion in long-term borrowings, with reserves of RM3.05 billion.
While other O&G companies have been ravaged over the past few years by low oil prices and more recently the adverse impacts of Covid-19, Dialog seems likely to maintain its strong profitability in FY2022 ending June. For the three months ended Sept 30, 2021, Dialog posted a net profit of RM128.82 million from RM505.45 million in sales.
On its prospects, Dialog “remains confident that its business model is well structured to manage and sustain itself through periods of economic uncertainty, oil price volatility and currency movements”, it says in the release of its financial results for the first quarter ended Sept 30, 2021.
Noting that the global economic outlook is showing signs of improvement, Dialog cautions, however, that it is still uncertain how long the impact of the prolonged pandemic as well as supply chain disruption and inflation will last.
The company says it has maintained a prudent approach and taken proactive steps in managing the group’s finances. It expressed optimism that economic activities will pick up and, barring any unforeseen circumstances, it will remain profitable in FY2022.
Much of Dialog’s success can be attributed to its executive chairman, Tan Sri Ngau Boon Keat, who is the co-founder and the largest shareholder, with 19.12% equity interest.
Next year marks 50 years of Ngau’s O&G career. He started out in Mobil Singapore Pte Ltd in 1972, before coming back to join national oil company Petroliam Nasional Bhd in 1975, and then setting up Dialog in 1984.