Dialog targets 20%-30% profit growth

KUALA LUMPUR: DIALOG GROUP BHD [], one of the few oil and gas (O&G) players which are still growing strongly, has set a long-term target to maintain 20% to 30% expansion of its bottom line.

Dialog chairman and group managing director Ngau Boon Keat said revenue and profit growth would be underpinned by its diversified business model in O&G support services based on a recurring income stream, including in the provision of specialised services, specialist products, catalysts handling and plant maintenance.

“Recurring income accounts for about 70% to 80% of our bottom line,” he told The Edge Financial Daily in a recent interview. The integrated specialist technical services provider to the O&G and petrochemical industry reported a net profit of RM26.93 million in its first quarter ended Sept 30, 2009 (1QFY10). This was 43% higher than the RM18.81 million recorded a year earlier.

For the fiscal year ended June 30, 2009, net profit rose 24.2% to RM101.34 million from RM81.56 million in FY08. Revenue climbed 39.6% to RM1.1 billion from RM790.51 million.

“As for future revenue, we are looking at two-thirds coming from international and one-third from local,” Ngau said.

For investments, Dialog’s strategy is to focus mainly on Malaysia. “Two-thirds of our investments will be in Malaysia as local investments are crucial to create the economic multiplier effect and the remaining one-third invested overseas,” Ngau added.

Ngau: Two-thirds of our investments will be in Malaysia



“Our objective is to have balanced growth and a geographical spread of the projects or businesses,” he said.

In recent years, it has been kept busy with projects including the Tanjung Langsat centralised terminal facilities, Pengarang deepwater petroleum terminal in southern Johor and an integrated logistics services supply base at the Jubail commercial port in Saudi Arabia.

Tanjung Langsat’s total capacity will be 400,000 cubic metres when completed. In September this year, phase one, with a storage capacity of 130,000 cubic metres, received its first product shipment. The second phase will open next March.

Dialog’s feasibility study and environmental impact assessment for the Pengarang project should be ready by mid-2010, Ngau said.

The independent deepwater storage terminal for crude oil and petroleum products will cost over US$1 billion (RM3.4 billion) and occupy 202ha. The development will stretch over 20 years and the advantage is its capability to handle very large crude carriers with a water depth up to 26 metres.

Dialog’s involvement in Pengarang is as an owner, investor and contractor, via a joint-venture company with Vopak Asia Pte Ltd and the Johor government. The Pengarang project too will provide recurring income to Dialog.

“The terminal will be Dialog’s third terminal and will synergise with Dialog’s investment in tankage facilities in Kertih and Tanjung Langsat,” he said.

As for the Saudi supply base project, Ngau said Dialog would own a 60% stake and the Saudi partner 40%.

“The base would have equipment for offshore O&G exploration, production platforms and chemicals,” he said. Phase one would cover 3.45ha and phase two 28ha.

It will be similar to Eastern Pacific Industrial Corporation Bhd’s (EPIC) Kemaman supply base which is a comprehensive logistics supply base for Peninsular Malaysia’s offshore petroleum exploration and production industries.

Phase one is expected to cost RM100 million and financed by Dialog and bank borrowings. Work is expected to be completed within one to two years.

“The base, when fully developed, will occupy about 32ha. Dialog sees the supply base as providing sustainable and recurring income,” Ngau said. Returns on the project should be 10% to 14% over 20 years.

Saudi’s Jubail Commercial Port authorities have approved the feasibility study and work on phase one is to start immediately and be developed over one to two years.

The supply base has the capacity to become a billion-dollar business when fully developed as it tapped into the growing O&G exploration industry there, Ngau said.

Most importantly, the project provides Dialog a beachhead into the growing O&G exploration support industry in Saudi Arabia as it will be able to provide its specialised services, including technical offshore services.

“This base will not only provide rental income but it can offer specialised services, offshore plant maintenance services,” Ngau said. Exponential growth was five to 10 times, depending on demand, he added.

Dialog’s core strength has always been in its technical services, including catalyst handling, not only in engineering and CONSTRUCTION [] of facilities.

“Dialog’s business model to supply specialist services is not affected by oil price fluctuation. Our catalyst handling services are the master key for us to expand our services to the customer, including plant maintenance services,” he said.

Dialog’s prudent policy has seen its cash and bank balances rising to RM204 million as at Sept 30, 2009, from RM178.7 million in June.

Ngau said the cash would help fund its capital expenditure and there was no need to undertake a rights issue or raise funds.

To grow the company and tap into opportunities, Dialog’s plan is to enhance the skills of its workforce, 50% of whom are technical staff.

Indeed, Dialog has stayed on track while other companies, which focus solely on securing contracts instead of providing the specialised services, have underperformed.

Its focus has also been on boosting shareholders’ value. Gross total returns over the past 14 years stood at 3,172%, with a compounded annual growth rate of 31%.

“We have grown and we have not changed the story. We have a strong management, good track record and the prospects are good,” Ngau said. The stock fell four sen to RM1.28 last Friday, with nearly 1.5 million shares traded.