Dialog's RM200mil tank expansion to bolster recurring income

KUALA LUMPUR: Analysts view Dialog Group Bhd's latest expansion of its petroleum product storage capacity in Tanjung Langsat, Johor, positively, saying it will strengthen the group's recurring income base and support its midstream growth prospects.

Earnings contributions from the expansion are expected from the financial year ending June 2030 (FY30).

Dialog announced an additional 100,000 cubic metres (cbm) storage capacity at its wholly owned Dialog Terminals Langsat 3 (DTL3), with completion targeted by mid-2029.

The expansion, estimated to cost up to RM200 million, will increase DTL3's capacity by 26 per cent to 480,000 cbm from 380,000 cbm currently, bringing Dialog's total storage capacity at Tanjung Langsat to more than 1.1 million cbm.

Public Investment Bank Bhd said the development would broaden Dialog's recurring income base while making use of its existing marine facilities.

It said management was targeting a high single-digit internal rate of return (IRR) for the project, consistent with its previous terminal developments.

The firm noted that the latest expansion would operate under an independent storage model, with leasing tenures expected to range from six to 12 months and rates benchmarked against S&P Global Platts market indications.

This would allow leasing rates to be adjusted according to prevailing market conditions, although earnings would depend on utilisation and pricing when the additional capacity is commissioned.

The commercial structure differs from the previous 150,000 cbm expansion, which began operations in September 2026 and is fully contracted, including 100,000 cbm dedicated to EcoCeres under a take-or-pay arrangement.

Public Investment Bank expects the latest capacity to achieve utilisation of more than 90 per cent following commissioning, supported by regional storage demand and potential demand for greater supply and logistics flexibility amid geopolitical uncertainties.

The project translates into an estimated capital expenditure of up to RM2,000 per cbm, with Dialog's engineering, procurement, construction and commissioning (EPCC) division undertaking the construction works, which are expected to begin immediately.

However, Public Investment Bank noted that the Tanjung Langsat terminal site was almost fully developed, suggesting limited room for further capacity additions after the latest expansion.

It maintained its earnings forecasts, with contributions from the project expected mainly from FY30 onwards, while keeping its "Neutral" recommendation on Dialog and target price of RM2.10 unchanged.

Separately, RHB Research said the expansion reinforced Dialog's strategy of growing its recurring midstream income, with the group's storage operations continuing to provide stable earnings visibility.

It noted that utilisation rates across Dialog's tank terminal assets remained above 90 per cent, while independent storage rates were stable at between S$6 and S$6.50 per cbm per month.

The firm said the group's midstream growth prospects were also supported by Phase Three of the Pengerang Deepwater Terminals expansion, which will add 614,000 cbm of storage capacity, with BP Singapore as its dedicated long-term customer.

The project could generate annual terminal revenue of between RM135 million and RM150 million upon full commissioning, it said.

RHB Research maintained its FY27 to FY29 earnings forecasts, as meaningful contributions from the latest DTL3 expansion were expected only from FY30 onwards.

It retained its "Buy" recommendation and RM2.44 target price, based on a sum-of-parts valuation covering Dialog's core business, terminal assets and upstream operations, with a six per cent environmental, social and governance discount.

The firm identified lower oil prices, weaker tank storage rates and lower utilisation of independent storage terminals as key downside risks.