Review of Dialog

14 August 2021

Dear Fellow Investor,

Review of Dialog

We are holding Dialog as an exposure to oil . It is a high quality blue chip with 9 % held by EPF and 7.4 % held by KWAP. The founder Ngan Boon Keat holds 23.3 %.

Since March 2021 there has been consistent buying by institutions,  the founder as well as other insiders .

Below is the Bloomberg insiders report showing lots of green arrows. Each green arrow represents an insider purchase. An insider only buys for one reason and that is he thinks prices will rise. An insider has deep pockets and buys value on price dips. He is also not concerned with price volatility because an insider knows the fundamentals of the company  better that most.

Recent CGS CIMB research summary:

Market not factoring in full long-term potential from PP3 (Singapore BP Terminal) However, the operating environment remains challenging in other ways. International travel restrictions continue to hamper Dialog’s ability to do overseas plant maintenance work, and the oil price volatility in CY20 as well as the global border closures seem to have slowed down new customer acquisition and development at PP3. The last major customer acquisition was BP Singapore, which was announced two years ago in May 2019; since then, Dialog has not announced any new customers for PP3. The dearth of positive newsflow has caused its share price to decline more than 20% over the past year. Our SOP valuation of its existing businesses is RM2.34; we expect the value of future PP3 developments to add a further RM1.48, giving a 32.6% upside to the current share price. We reiterate Add as we view Dialog as undervalued relative to its long-term potential. SOURCES: CGS-CIMB RESEARCH

Dialog is an Asian/ Malaysian recovery story . As business returns to pre pandemic levels, MCOs are lifted and borders open oil demand will increase.   

Below is the Bloomberg summary of analyst reviews: Average target is RM 3.91.

Extreme negative sentiment and heavy foreign fund selling has driven the KLSE and Dialog price down below historical valuations. According to today’s Edge foreign fund ownership of Malaysian shares is at 19.3 % the lowest since 1998.   

Catalysts for Malaysian recovery are two: vaccination rollouts and resolution of political uncertainty. In  Tong’s Edge column today he details why mathematically the worst for the Klang Valley should soon be over. All 6.2 million  will be fully vaccinated  with full vaccine efficacy in 5 weeks and therefore the number of infected and hospitalized will drop dramatically.  

On 7 September the parliament will meet and we will know the results of the confidence motion.  The market will tell us ahead of time if it is a positive result. We might see a pickup of foreign fund buying as well as increased volume. So far the market is holding support which is positive.  

Next week I will review 3 of our Singapore holdings: OCBC, Parkway Life Reit and SGX. These are recovery plays.

Keep safe

Bill

At some point inflation will turn from transitory to  endemic contrary to what the US Federal Reserve forecasts. Commodities should benefit.