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KUALA LUMPUR (Jan 4): RHB Research has a “buy” call for Dialog Group Bhd, MISC Bhd, Bumi Armada Bhd and Magnum Bhd for the new year.
Dialogue, which operates as a provider of technical services in the oil, gas (O&G) and petrochemical sectors, went from “neutral” to “buy” as the recent weakness in the share price offers an opportunity to accumulate shares. The target price (TP) of the stock remained at RM4.
“Although the company may not be able to achieve growth in Fiscal Year 21 (the financial year ending June 30, 2021) as there are no signs of a decline in tank terminal rates, Dialog deserves a higher valuation as its growth trajectory is expected to return in fiscal year 22, ”noted RHB Research analyst Sean Lim.
He explained that while downstream activities would gradually pick up from the first quarter ending September 30, 2020 (1TFY21), on a full year basis they would still register a decline.
“Management is targeting joint venture (JV) and associate contributions to grow 10% YoY (YoY) in Fiscal Year 21. Further growth can be seen in Fiscal Year 22, with the commercialization of the expansion of Phase 3A capacity of 430,000 cubic meters
dedicated to BP in mid-2021, “he said.
“It may also take longer than expected to seal the new additional tank terminal capacity expansion for Pengerang Phase 3, as most customers are spending cautiously today,” Lim said.
Lim also noted that Dialog’s Pengerang Independent Terminals Sdn Bhd (PITSB) had been operating at optimal capacity despite the recent spike in oil prices. Meanwhile, the rates ranged between US $ 6 and US $ 7 per cubic meter (m3).
“Based on our projections for crude oil prices of US $ 51-US $ 55 / bbl for 2021-2022, there is a possibility that onshore storage prices will weaken slightly from peak rates, but this could remain at US $ 5.50 per cubic meter. Remember that the average contract tenure for PITSB is approximately 12 months, “he said.
MISC, which provides international marine energy-related solutions and services, maintained its “buy” call, but its TP was reduced to RM 8.11 from RM 8.53, along with the reduction of the valuation of its oil segment to 1.1 times the book value. from 1.3 times before.
“We believe the recent share price weakness has weighed on the sluggish tanker market and this could be a build-up opportunity to position ourselves for a rate recovery in 2021. After the earnings adjustment, we still wait
its operating cash flow will grow from 9% to 10% in the next two years, anchored by the incorporation of new assets. [Its] dividend yield is still decent and any special dividend will be a positive surprise, “Lim said in a separate research note.
He believes that the recovery will be gradual as OPEC + slowly ramps up oil production with a monthly cap of 500,000 barrels per day, depending on market conditions, but is optimistic that an economic recovery will occur in the second half of the year. year (2H21), thanks to positive vaccine developments.
“Therefore, we should see spot charter rates improve from current levels, benefiting from improved demand for tankers, coupled with the persistence of slow fleet growth, as evidenced by their low level of multi-year order book. A higher term-to-spot ratio of 65:35 in 3Q20 (from 76:24 in 2Q20) will likely increase its exposure to weak spot rates in 4Q20, “he said.
Lim noted that MISC also recently took possession of two dynamic positioning shuttle tankers and the first of its very large ethane carriers, and is expected to take possession of more ships in the next two years. “Most of these vessels have long-term contracts and then they will gradually strengthen their recurring cash flow,” he said.
Bumi Armadawhich is an international offshore oilfield service provider, also maintained its “buy” call with a new TP of 43 sen from 38 sen before.
“We continue to like Bumi Armada for its improved earnings and cash flow visibility, supported by stable FPSO (floating production storage and offloading) contributions that mask the weakness of weaker offshore marine services (OMS). The risk-reward profile looks attractive as the current 5.2 times FY21 (the financial year ending December 31, 2021) price-earnings and 0.5 times the FY20 price-book value (-1.5 standard deviations from its mean of three years) reflect a high net leverage 2.6 times as of 3Q20, “Lim said in another statement.
Meanwhile, its TP rose after reducing the discounted cash flow of the Armada Kraken 10% FPSO, up from 20% above, due to better vessel stability. The analyst noted that its FPSO earnings could have increased on a quarterly basis in 4QFY20 due to higher contributions from Armada Kraken after its scheduled maintenance was completed in September.
“Our new TP implies 6.4 times the FY21F (predicted) price-to-earnings ratio and 0.6 times the FY21 future price-to-book value. Our base case assumption is that Bumi Armada will refinance the loans due in May, so that there would be no required capital fundraising, “he said, referring to RM656 million in short-term debt due that month.
Lim said that while the OMS segment is expected to still face headwinds in 4Q20, in the absence of subsea work orders and potentially lower offshore service vessel (OSV) utilization rates due to the monsoon season , he believes OSV contributions could improve in 2021. “This may be due to higher demand for vessels on drilling and related projects, while Bumi Armada is pushing for better spot charter rates.”
Magnum, which operates as a number forecasting gambling or lottery business, held to “buy” with a TP derived from the higher discounted cash flow of RM2.97 from RM2.73.
“This was because the tax review was finally concluded after final payment of taxes and penalties was agreed with the Inland Revenue Board (IRB) for a lower amount than expected,” said analysts Loo Tungwye and Lee Meng Horng. in another investigation. Magnum made a settlement of the tax payment with the IRB in RM80.6 million, 56% less than the initially expected RM182.8 million.
Analysts said its projected earnings for 2020 to 2022 were unchanged as the tax settlement was a non-recurring item, while its dividend per share estimates for 2020 to 2021 also remained the same as they believe trading of Magnum can generate enough cash flow to cover. liquidation and keep your dividend regular.
“Magnum remains our preferred choice as a pure number forecasting operator (NFO) due to its resilience in the 4D business that could benefit from ongoing government efforts to curb illegal gambling,” analysts said.
They added that ticket sales had improved significantly since their outlets reopened in June, and sales were now at around 85% to 90% of pre-pandemic levels.
“More upside gains could come from stricter gambling laws and the potential monetization of its stake in U-Mobile,” the analysts added.
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