Maintain HOLD on Dialog. The group announced that it has achieved Final Investment Decision for Baram Junior Cluster. Though we are positive on the development premised largely on a favourable contract structure and much needed boost to medium term earnings (until materialisation of Pengerang Phase 3), we maintain our forecasts for now pending further disclosure from management on the field's estimated reserve and production volumes. Our TP of RM2.00/share is based on a CY26 PE of 18x, or -1 SD to its 5-year average of 25x.

• All go for Baram Junior Cluster. Dialog announced that its achieved Final Investment Decision (FID) amounting to US$235mil (or RM1.1bil) for the Baram Junior Cluster (BJC) as the field development and abandonment plan (FDAP) has received approval from Petronas. Recall, the Group, in a 70:30 venture with Petroleum Sarawak Exploration and Production (PSEP) had signed the BJC production sharing contract in 2023. BJC is a small field asset which involves a 4 year development phase consisting of: (a) 2-year predevelopment phase for assessment and appraisal of the wells and (b) 2-year development phase. Upon completion, first commercial production is expected to begin and the production period will last for 10-years.
• Positive on development but maintain forecasts until further disclosure of reserve and/or gross production numbers. Despite a small resource potential, our view is premised on a simpler contract structure that is likely to see enhanced returns from the project and hit the company's target of low-teens IRR. Notably, the SFA PSC model will not include supplementary payments, hence Dialog is able to benefit entirely from any upsides to oil price above the set base level. Based on a development schedule of 2-years, we believe commercial production is likely to begin earliest in 3QFY27. Nevertheless, we maintain our thesis that impact from the near-term catalyst remains marginal by ~5% due to the Group's significantly large asset base.
• Sufficient headroom for capex. We believe the group will be able to bear the capex based on Dialog's strong balance sheet position. Based on a capex of RM1.1bil and assuming a debt-to- equity ratio of 70:30, we expect to see net gearing rise from 0.12x to 0.22x in FY27.

Source: AmInvest Research - 10 Jan 2025