By Emmanuel Samarathisa
ANALYSTS believe that Dialog Group Bhd’s share price will be sustainable despite concerns over the performance of the oil and gas service provider’s storage business due to depressed oil prices and the Covid-19 crisis.
One criticism that had been flagged by market participants over Dialog’s storage arm was that while inventory build-up would be positive for the group, it might take a hit when drawdowns kicked in.
Dialog’s share price had been inching upwards since March 16 from RM2.80 to close at RM3.09 at the market close on April 8.
MIDF Research analyst Noor Athila Mohd Razali noted that the current share price momentum for Dialog was “sustainable” as the demand for storage would continue to be high for the first half of the year and going into the second half of 2020.
“This is given that oil producers and refiners will be inclined to store more crude in light of the current low price environment for future usage. Oil producers are also storing current production in anticipation of a future recovery in oil price,” she told FocusM.
Also in Dialog’s favour were its maintenance, construction and modification work contract and limited exposure to the upstream production supply chain, she added. The upstream production supply chain makes up about 10%-15% of Dialog’s total earnings.
Rakuten Trade vice-president Vincent Lau also believed that Dialog’s storage business would remain robust as it is “defensive in nature”.
Dialog’s oil storage hub is in Pengerang, Johor. There are three phases to its Pengerang Deepwater Terminals. Phase 1, which translates to about 30% of total capacity, consists of storage tanks while the other two are for locking in long-term contracts.
“Also, its other businesses will pick up. While there might not be any upside, as the demand for oil may be muted in the near term, the group should survive the tough economic environment,” Lau told FocusM.
Brent crude had been hovering around US$31.91 per barrel, after a rally since Tuesday (April 7) over hopes that there would be a supply cut from OPEC+. – April 8, 2020
