DIALOG announced that it has secured the final investment decision (FID) on the Baram Junior Cluster Small Field Asset PSC as the plan has been approved by Petronas. We are not imputing its impact to our SoP valuation for now due to the lack of details.

However, by inferring from its D35/D21/J4 PSC experience, we postulate that it potentially offers RM0.26/share accretion, assuming similar field economics. We maintain our forecasts, TP of RM3.37 and OUTPERFORM call.

DIALOG announced that the field development and abandonment plan for the Baram Junior Cluster Small Field Asset PSC has reached FID with a total investment of USD235m, approved by Petronas on 8 January 2025. Feasibility studies carried out over the past two years informed the development plan. DIALOG holds a 70% stake, with the remaining 30% owned by PETROS. The 14-year contract outlines a two-year development phase, followed by 10 years of production, implying first oil in early 2027 at the earliest.

While production details are limited, comparing to the group's previous (D35/D21/J4) project (capex of USD120m) suggests a potential RM0.26/share accretion if Baram Junior proves successful. We view this announcement positively. We will incorporate it into our DCF once more information becomes available. Past successes at Bayan and D35/D21/J4 in the same basin suggest manageable execution risks. In addition, DIALOG's upstream portfolio could gain further headway from the Raja Cluster in Peninsular Malaysia, currently in feasibility stage, offering further upside should it proceed.

Outlook. DIALOG's earnings are on an upward trajectory, driven by improved occupancy rates and spot rates at its independent tank terminals due to the sustained increase in demand regionally for storage. Additionally, the completion of legacy EPCC contracts that suffered from cost elevation should pave the way for better EPCC margins in the coming quarters.

Forecasts. Maintained.

Valuations. We maintain our SoP-based TP of RM3.37. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. We continue to like DIALOG for: (i) margin recovery at its plant maintenance, EPCC and specialist product businesses, (ii) its earnings growth and diversification driven by forays into upstream investments, including production assets (current portfolio of Production Sharing Contracts includes Baram Junior Cluster, D35/D21/J4 and Concession L53/48 in Thailand), and (iii) its strong track record in project execution. Maintain OUTPERFORM.

Risks to our call include: (i) reversal of the easing cost pressures trend, (ii) delay in capacity expansion plans, and (iii) reduced utilisation of tank terminals.

Source: Kenanga Research - 10 Jan 2025