CGS International Securities Malaysia Sdn. Bhd.
Date of Report: June 24, 2025

Dialog Group Bhd Set for Explosive Growth: Major Tank Terminal Expansion and Upstream Ambitions Drive Investment Case

Introduction: Dialog Group Bhd Poised for Major Upside

Dialog Group Bhd, a leading Malaysian oil & gas equipment and services provider, is making headlines with its ambitious plans for tank terminal expansion and upstream production growth. The company’s fundamentals remain robust, with a defensive business model, expanding storage capacity, and lucrative partnerships driving optimism for both near-term results and long-term value creation. This in-depth analysis explores the company’s growth drivers, financial outlook, sector ranking, ESG strategy, and the competitive landscape.

Market Overview: Share Price Volatility and Oil Price Sensitivity

Dialog’s share price has closely tracked oil price movements, rising after geopolitical tensions (such as the Israel-Iran conflict) and retreating following ceasefires. However, the company’s fundamentals are not highly sensitive to oil price volatility. A US\$5/barrel change in oil price impacts Dialog’s FY26F core EPS by only 2-3%. Approximately 60% of FY26F core net profit is forecasted to come from its tank terminal business—an area known for stable earnings and cash flows.

Tank Terminal Business: Massive Capacity Expansion on the Horizon

Dialog’s cornerstone tank terminal segment is poised for significant expansion over the next four years, with three major customers in the pipeline:

• Petronas-Enilive-Euglena Biorefinery: Expected Phase 2 of Pengerang Deepwater Terminals (PDT) to add approximately 250,000 cbm of tank capacity, with Petronas confirming project viability.
• Unidentified Customer at PDT Phase 3: Plans for about 1 million cbm of new storage tanks, echoing the scale of BP Singapore’s current 430,000 cbm facility.
• Pengerang Energy Complex (PEC) by ChemOne: A US\$2.7bn syndicated loan is being sought for a total US\$3.5bn project, with 90% of funding backed by export credit agencies. Dialog is expected to construct another 1 million cbm of tanks at PDT Phase 3 if financial close is achieved by 3Q25.

Dialog currently owns 5.3 million cbm of tank capacity. The projected 2.25 million cbm expansion represents a 42% increase on a gross basis and a 55% increase on an equity basis, considering Dialog’s various ownership stakes.

Upstream Ambitions: Doubling Oil & Gas Production

Dialog is set to more than double its oil and gas output in the next 3-5 years, supported by:

• Baram Junior Cluster: Production from early CY27F.
• RAJA Cluster: Production expected from early CY29F, pending final investment decision (FID).
• Mutiara Cluster: Targeting first production by mid-CY29F, subject to FID.

These developments highlight Dialog’s focus on marginal field development, which offers attractive returns even in a moderate oil price environment.

Financial Performance: Healthy Balance Sheet and Growth Prospects

Key financial insights:

• Revenue in FY25F is expected to dip due to timing of projects, but rebound swiftly from FY26F onwards.
• Operating EBITDA margin is projected to remain robust, above 19%.
• Dividend payouts remain steady and sustainable.
• Net gearing is expected to rise as Dialog invests heavily in new tank terminal infrastructure, but remains manageable given strong cash flows.

Sum-of-Parts (SOP) Valuation: Significant Upside Potential

Dialog’s SOP-based target price stands at RM2.58. The current share price of RM1.52 implies an upside of nearly 70%. The valuation includes:

• RM2.15 per share from existing businesses
• RM0.43 per share from future tank terminal developments at Pengerang

Dialog is currently trading below the value of its existing businesses, with future growth options essentially valued at zero by the market. This presents a compelling rerating opportunity if growth confidence returns.

Key Rerating Catalysts and Risks

Potential Catalysts:

• Announcements of new tank terminal contracts, especially for the Petronas-Enilive-Euglena biorefinery, the unidentified oil storage customer, and the Pengerang Energy Complex.
• Completion and ramp-up of ongoing upstream and downstream projects.
• Supportive forex gains in 4QFY25F due to a weaker US dollar.

Risks:

• Weaker oil prices, particularly if OPEC+ ramps up production or global demand softens due to macro factors like US tariffs.
• Potential delays in financial close or execution of new terminal projects.

Dialog’s Tank Terminal Portfolio: Present and Future Developments

• Langsat 1: 476,000 cbm clean product storage, commissioned 2009 (100% owned).
• Langsat 2: 171,000 cbm clean product storage, commissioned 2011 (100% owned).
• Langsat 3: 120,000 cbm (plus 85,000 cbm expansion, and new 24,000/50,000 cbm renewable tanks by 2026). Additional 50,000 cbm possible for future expansion.
• PITSB (SPV1): 1.78 million cbm crude/petroleum storage (46% owned), commissioned in phases since 2014.
• PP3A (SPV5): 430,000 cbm clean product storage for BP Singapore, commissioned March 2021 (100% owned).
• PT2SB (SPV2): 1.3 million cbm crude/petroleum/petrochemicals storage (25% owned), 25-year lease to Petronas entities.
• PLNG2 (SPV3): 400,000 cbm LNG storage, 25-year lease to Petronas Gas.
• Kertih: 400,000 cbm petrochemical storage, extended lease to 2030 (30% owned).

Future expansion includes further phases at Pengerang, with large tracts of reclaimed and buffer land available for new tank construction.

Sector Comparison: Dialog Among Malaysia’s O&G Leaders

Dialog stands out for its strong tank terminal focus, stable margins, and attractive growth profile versus peers, even as it carries a higher forward P/E due to a temporary dip in FY25 earnings.

ESG Strategy: Navigating the Energy Transition

Dialog is recognized as a conservatively managed company with a growing focus on sustainability. Key ESG initiatives include:

• JV with Diyou PCR Sdn Bhd for recycled PET pellets (currently mothballed due to low prices).
• Launch of Dialog ESECO Sdn Bhd to provide waste management and recycling solutions, including the SisaLab digital platform.
• Investments in renewable energy, including green hydrogen provider Hiringa Energy and a US-based carbon capture technology company.
• Scope 1 and 2 emissions rose to 17,326 tCO2e in FY23 due to new terminal start-ups; Dialog is aiming for Net Zero 2050, with a near-term focus on operational efficiency, waste reduction, and recycling expansion.
• Ongoing evaluation of solar and wind farm investments, though none have yet met required IRR thresholds.
• Strong CSR program via MyKasih Foundation, with RM4.6m contributed in FY23.

Other Notable Developments and Partnerships

• Morimatsu EPCC yard JV: 49% Dialog stake, completed major expansion in 1QCY25 targeting annual revenue of RM300m.
• LNG-driven Air Separation Unit (ASU): 27.78% stake, operational from Nov 2026, leased for 25 years to an industrial gas player.

Dialog’s portfolio also includes direct and indirect stakes in oilfields in Malaysia (Bayan, D35/D21/J4, Baram Junior Cluster, Raja Cluster, Mutiara Cluster) and Thailand (Pan Orient Energy Siam).

Conclusion: Dialog Group Bhd—A High-Conviction Growth Story

Dialog Group Bhd is at a critical inflection point with visible growth catalysts, a robust balance sheet, and an undervalued share price relative to its intrinsic value. Investors can look forward to:

• Major tank terminal capacity gains, with 55% equity growth likely
• Doubling of upstream oil and gas production within the next five years
• Sustained dividend yield and prudent financial management
• Active pursuit of ESG and energy transition opportunities

With positive sector rankings, a compelling upside to target price, and strong operational execution, Dialog remains a standout high-conviction pick for investors seeking exposure to Asia’s oil & gas infrastructure growth wave.