KUALA LUMPUR (Jan 20): Dialog Group Bhd’s (KL:DIALOG) proposed subscription of a 27.78% stake in Regas Terminal Sdn Bhd (RGTP), which has an air separation unit (ASU) project in Pengerang, is expected to raise its associate contribution by RM5 million to RM10 million a year, said Maybank Research.

This is Dialog’s second collaboration with Petronas Gas Bhd (KL:PETGAS), who will hold the remaining 72.22% stake in RGTP. The first involves the development of PLNG2 itself, while the ASU project will be located next to PLNG2.

“The facility will be leased to an ‘experienced industrial gas market player’ for 25 years, during which they will handle the operation, maintenance & marketing of the gases produced. In return, RGTP will receive fixed monthly charters,” said Maybank.

“We estimate the IRR (internal rate of return) of this project to be at 9%,” it said, adding that the forecasted associate contribution represents 2% of its forecasted core net profit for Dialog for the financial year ending Dec 31, 2027 (FY2027). The project is expected to be completed by the end-2026, it said.

However, despite the slight earnings boost, Maybank made no changes to its earnings forecasts and target price of RM2.97 as it awaits “updates on possible tax incentives as part of the Johor-Singapore Special Economic Zone (JS-SEZ) goodies”.

“Dialog is one of our sector’s top picks in our O&G universe,” it said.

The Edge previously reported the engineering procurement construction and commissioning (EPCC) cost of the project to be RM368 million, citing Petronas.

Maybank said from an ESG perspective, this venture is expected to reduce electricity consumption by 25% and lower carbon emission by 15,000 tonnes/year.

Separately, MIDF Research said the cost-effectiveness of the LNG-driven ASU will benefit Petronas Gas, “signalling the group as one of the leading sustainable energy solutions providers within the sector”.

The research house has maintained a target price of RM19.23 on Petronas Gas, however, due to the project’s two-year completion timeline.

“Given that the ASU market is valued at approximately RM28 billion in 2023, with anticipation of a +5% 10-year compounded annual growth rate driven by increasing demand from oil and gas sector, we believe that the long-term lease and operations of the proposed LNG-driven ASU will contribute positively for both companies,” it said.

At the time of writing, shares of Dialog traded up eight sen or 4.21% to RM1.98, giving it a market capitalisation of RM11.06 billion. Petronas Gas shares rose 20 sen or 1.16% to RM17.38, valuing the group at RM34.91 billion.