This article first appeared in The Edge Financial Daily, on November 20, 2015.

KUALA LUMPUR: Dialog Group Bhd’s executive chairman Tan Sri Dr Ngau Boon Keat shrugged off concerns raised by minority shareholders during the group’s annual general meeting (AGM) over low oil prices, which have fallen over 60% since the middle of last year, and assured that the group’s business model is diversified enough to buffer it against the brunt of the slump’s impact.

In fact, as the ringgit is now trading lower against many currencies, he said Dialog would make foreign exchange gains because more than half its business transactions are in US dollars.  Year to date, the dollar has risen about 24% against the ringgit.

The oil and gas (O&G) service provider’s business model, he stressed, is diversified.

 Hence Dialog, he said, is buffeted from the impact of depressed oil price that has slashed many O&G players’ earnings. Oil was trading at US$44.65 (RM193.62) per barrel at the time of writing yesterday compared with around US$110 in June last year. “Our business model is structured so that the fluctuating crude oil prices will not affect our business so much. Of course, our upstream business is affected, but our downstream segment and tankage business [in the midstream segment] are doing really well,” was how Ngau summed up his response to shareholders’ concerns to reporters yesterday after the AGM.

“We are hedged in such a way that even when oil prices go up, our upstream segment will do well; for the midstream segment — the tankage — it is part of logistics. Whether prices are high or low, people will still need to use tankage,” he said, noting that Dialog’s revenue stream comes equally from upstream, midstream, and downstream segments.

Ngau also noted that the storage capacity in Dialog’s Pengerang Independent Terminal is fully leased out.“The lease might fetch higher when oil prices are higher, but the key point is the terminal is fully used. If it’s empty, not only is there no income, you have to incur operating costs,” he explained, before saying that the terminal brings long-term recurring income to Dialog.

The Pengerang Independent Terminal is 44%-owned by Dialog, with Dutch’s Royal Vopak NV holding another 44% stake, and 10% with Johor’s State Secretary Inc. The terminal can store up to 1.3 million cu m worth of petroleum products and crude oil.

In the group’s first quarter ended Sept 30, 2015 (1QFY16), Dialog’s revenue only slid 0.96% to RM536.37 million, largely on lower sales in specialist products and services, and upstream activities. Net profit, on the other hand, jumped 20.4% year-on-year to RM60.07 million, while its net margin improved to 11.2% from 9.21% a year earlier, as its Malaysian operation’s earnings was boosted by engineering and construction activities, mainly for Pengerang Deepwater Terminal’s second phase.

Further, profit contribution from the tankage business more than doubled to RM12.1 million in 1QFY16, due to the opening of the Pengerang Independent Terminal.

Ngau added that Dialog’s upstream business has diversified its clientele to include non-O&G entities, as many oil giants are slowing down in passing out jobs.

“Like our (fabrication and structure) operation in New Zealand. With works from the O&G industry coming down, it has diversified into buildings,” said Ngau.