Dialog needs major tank terminal deals for growth

PETALING JAYA: Dialog Group Bhd may need to secure new, sizeable tank terminal contracts to earn a re-rating, which would help grow its recurring income portfolio, according to Maybank Investment Bank Research (Maybank IB).

The research house said Dialog could benefit from the development of the Pengerang Energy Complex by Singapore’s Chemone Holdings Pte Ltd, as well as from Petroliam Nasional Bhd’s (PETRONAS) RM6bil development of a biorefinery capable of processing 650,000 tonnes of raw materials, alongside Enilive SpA and Euglena Co Ltd.

This development will create a need for tank terminals to store refined and crude products long-term, said Maybank IB.

The research house kept its “buy” call on the stock with a target price of RM2.34 a share. The shares closed at RM1.14 yesterday, down 7.32%.

Lower oil prices due to higher production could boost demand for oil storage, as Dialog’s tank terminals are already over 90% utilised as of the second quarter of the financial year ending July 31, 2025 (FY25).

“If demand exceeds supply, storage rates may rise, benefitting Dialog’s independent tank terminals,” it added.

Maybank IB noted that Dialog’s end-clients might lock in longer contracts at higher rates, thereby improving Dialog’s cash flow and earnings, although lower oil prices could still hurt Dialog’s upstream revenue.

The research house estimates Dialog’s earnings are 40%/55%/5% split across up-/mid-/downstream operations in FY24.

“The recent weakness in Dialog’s share presents a buying opportunity as it currently trades at about 12 times FY26 earnings,” said Maybank IB.

The research house likes Dialog for its cash-flow stability from its midstream tank terminal assets amid low oil prices.

Opec+ announced last week that it will gradually raising oil production to 2.2 million barrels per day (bpd) starting April 2025 to September 2026, before cautioning the gradual increase may be paused or reversed depending on evolving market conditions.

Maybank IB highlighted that Opec+ plans to boost output by 411,000 bpd in May 2025, which caused Brent crude oil price to react negatively and declined by about 13% to US$65 per barrel between April 3 and April 8, from US$75 per barrel previously.