Broker: UOB Kay Hian
Date of Report: Thursday, 31 July 2025

Dialog Group Bhd: Riding the Wave of Energy Transition and Storage Catalysts in Malaysia

Overview: Dialog Group in the Spotlight Amidst Malaysia’s Energy Transition

Dialog Group Bhd (DIALOG: DLG MK), a leading player in Malaysia’s energy sector, is attracting renewed attention from investors as it leverages the country’s drive towards renewable energy and storage expansion. With a robust business model encompassing engineering, procurement, construction, commissioning (EPCC), plant maintenance, and ownership of oil and gas tank terminals, Dialog is positioning itself at the forefront of the energy transition. The company’s recent US$330 million contract for biofuel storage, in partnership with global energy heavyweights, underscores its pivotal role in Malaysia’s renewable energy ambitions and provides significant catalysts for future growth.

Company Profile & Recent Performance

• Current Share Price: RM1.69
• Target Price: RM2.50
• Upside Potential: +47.9%
• Market Cap: RM9,542.0 million (US\$2,250.4 million)
• Major Shareholders: Ngau Boon Keat (18.3%), EPF (16.7%), Azam Utama (7.6%)
• GICS Sector: Energy
• 52-week High/Low: RM2.58/RM1.13
• Shares Issued: 5,642.6 million

Dialog Group’s share price has shown resilience, rebounding 7% in the last month and 15.8% over the past three months, reflecting growing optimism over its storage and renewable energy projects. However, it remains down 32.9% over the past year, suggesting significant headroom for recovery.

Major Storage Contract: Powering Malaysia’s Renewable Ambitions

Dialog’s joint venture terminal, Pengerang Terminals (Two) SB (PT2SB), co-owned with Royal Vopak, has secured a landmark Terminal Usage Agreement (TAU) with Pengerang Biorefinery SB (PBSB). This expansion project, valued at US$330 million (EUR282 million), will add 0.272 million cubic meters of storage capacity specifically for renewable fuels and biofuel storage.

• Project Highlights:
  • Operations to commence in the second half of 2028 under a 25-year take-or-pay contract.
  • Represents the first major renewable fuels/biofuels storage capacity for Dialog, aligning with its climate change strategy.
  • Expected internal rate of return (IRR): high single digits, similar to the original PT2SB project.
• Strategic Impact:
  • Solidifies Dialog’s reputation as a leader in the energy transition space.
  • Enhances environmental, social, and governance (ESG) credentials.
  • Potential for further storage catalysts in the Pengerang region.

Project Execution and Financial Impact

Dialog is expected to undertake the EPCC works for the PBSB project, with the EPCC value estimated to be 85-90% of the total project cost. This biorefinery will utilize Eni’s Ecofining technology to produce Sustainable Aviation Fuel (SAF) and Hydrogenated Vegetable Oil (HVO/Renewable Diesel), targeting both aviation and road transport sectors.

• Estimated annual income from the TAU: RM88 million (net to Dialog).
• Discounted cash flow (DCF) accretion estimated at RM0.04-RM0.05 per share from 2028 onwards.
• While the immediate DCF impact (2% to sum-of-parts, SOP) is modest, the project’s scale and ESG significance could command a market premium.

More Storage Catalysts on the Horizon

Investors are anticipating further project sanctions in the storage space:

• Pengerang Energy Complex (PEC):
  • Over US\$5 billion low-carbon aromatics complex with 5.6 million tonnes per annum (MTPA) capacity.
  • Will require a third-party bulk storage operator for feedstock imports and product exports.
  • ChemOne, the developer, aims to finalize a Common Terms Agreement by 3Q25.
• Pengerang Renewables Complex (PRC):
  • Integrated HVO and SAF facility planned adjacent to PEC, enabling a circular economy with bio-naphtha and hydrogen exchanges.
  • Potential for additional long-term take-or-pay storage contracts.
• Financial Impact:
  • If Dialog secures both PEC and PRC storage contracts, SOP accretion could be worth RM0.25 per share.
  • The enlarged PT2SB (including the latest TAU) represents a RM7.7 billion total investment and about RM0.40/share in SOP.

Royal Vopak: Positive Storage Market Outlook

Royal Vopak’s recent half-year results support the bullish outlook for storage developments:

• Key crude storage hubs, including the Malacca Straits, maintain over 95% utilization despite tariff uncertainties.
• Vopak upgraded its EBITDA and capex outlook for 2025.
• A one-off EUR21.7 million EBITDA gain in 2Q25, reflecting a resolved commercial claim with PT2SB related to previous refinery outages.
• No more outstanding claims on PT2SB, indicating improved operational stability.

Near-Term Earnings and Risks

Dialog’s upcoming 4QFY25 results may face downside risks due to lower quarter-on-quarter oil prices, but robust storage earnings and higher downstream/maintenance contract rates are expected to offset any weakness. Investors are likely to focus on event-driven catalysts in 2H25, as the market already expects an earnings recovery.

• Risks:
  • PT2SB’s capacity has previously been revised downward, though take-or-pay contract earnings remain unchanged.
• Earnings Outlook:
  • Forecasts are maintained, with further upside from new storage projects and the Johor-Singapore economic corridor not fully priced in.

Valuation and Recommendation

• Recommendation: BUY (maintained)
• Target Price: RM2.50, pegged to FY25 valuations
• Valuation Breakdown:
  • Core business: 18x PE on net profit, ex-associates
  • Kertih Terminal: 30% stake, WACC 9%
  • Tanjung Langsat 1 & 2: 100% stake, WACC 9%
  • Pengerang Phases 1 & 2 Upgrades
  • D35 PSC + Bayan + POECT: O&G price assumption US\$90-100/bbl, WACC 12%
  • Pengerang Phase 3/Expansion: RM0.45/share
  • Net debt deduction: (RM0.23)/share
• Implied Valuations:
  • P/E: +1 SD of 10-year average (34.9x)
  • P/B: 2.5x

Environmental, Social, and Governance (ESG) Commitment

Environmental:

• Scope 1 & 2 carbon emissions increased to 17,326 tCO2e in FY23 from 14,865 tCO2e in FY22, but Dialog has introduced sustainability goals.
• Zero Lost Time Injury (LTI) frequency in FY23, maintaining a strong safety record.

Social:

• Female representation in management stands at 21% (up from 19% in FY22).
• Over RM440 million in donations since the inception of MyKasih, a charitable foundation founded by Dialog’s founder.

Governance:

• Five out of nine board members are independent, representing diverse backgrounds, despite some family representation in management.

Conclusion: Dialog Group Set for a Multi-Year Re-Rating

Dialog Group’s strategic pivot towards renewable fuels storage, backed by strong project execution, robust financials, and a solid ESG framework, positions the company as a prime beneficiary of Malaysia’s energy transition. With multiple near-term catalysts, a strong balance sheet, and visible earnings recovery, Dialog offers compelling upside potential for investors seeking exposure to Southeast Asia’s evolving energy landscape.

Key Takeaways for Investors

• BUY recommendation maintained with a target price of RM2.50.
• Strong earnings visibility and near-term catalysts from major storage projects.
• Robust ESG initiatives and governance practices enhancing investment appeal.
• Valuation remains attractive amidst sector recovery and renewed storage demand.