MIDF Amanah Investment Bank Bhd (MIDF Research) and RHB Investment Bank Bhd (RHB Research) have both reiterated their BUY calls for Dialog Group Bhd, citing the positive impact of its final investment decision (FID) on the Baram Junior Cluster Small Field Asset Production Sharing Contract (BJC SFA PSC). MIDF Research maintains its target price (TP) at RM2.72, while RHB Research slightly raises its TP to RM3.11, reflecting a potential 69% upside.

Dialog's FID, involving an investment of US$235 million, marks a significant step in the development and abandonment plan for the BJC SFA PSC, a project in the Baram Delta within the Sarawak Basin. This follows the initial production-sharing contract signed in January 2023.

According to MIDF Research, Dialog's involvement in the BJC SFA PSC aligns with its strategy to expand and diversify its upstream, midstream, and downstream energy operations. The research house viewed this diversification as a key advantage, enabling the group to mitigate risks from volatile oil prices and economic uncertainties while securing stable long-term income. Additionally, the Baram Delta's strategic location and potential for deepwater development are expected to boost Malaysia's upstream activities in the coming years.

RHB Research echoed similar sentiments, noting that the project will bolster Dialog's domestic upstream portfolio. The research house estimated an internal rate of return (IRR) in the low to mid-teens and anticipates an average annual profit of RM40 million by financial year 2027 (FY27), based on its back-of-envelope calculations. This projection assumes a 12% IRR, 60% debt financing, and Dialog's 70% stake in the venture.

Dialog's financial standing further supports its capacity to execute the project. RHB Research highlighted the group's RM455 million net cash position as of the second quarter of FY25, which is sufficient to manage its equity outlay of approximately US$66 million if 60% of the project is debt-funded.

The project also benefits from its shallow-water location and proximity to existing production infrastructure, which could reduce capital expenditure requirements. However, MIDF Research flagged potential risks, including subsurface geological challenges, skilled labour shortages, and regulatory uncertainties.

Both research houses remain optimistic about Dialog's prospects, attributing its growth potential to the expanding demand for liquefied natural gas in the region and the discovery of new oil and gas fields offshore Peninsular and East Malaysia.

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