Analysts stay neutral on claims against against Dialog

PETALING JAYA: Analysts believe that the arbitration between Dialog and Tanjung Langsat Port (TLP) would not impact Dialog for the time being as it is not a legal case yet and might eventually turn out to be a long-drawn-out case.
Dialog's wholly-owned subsidiary Dialog E&C was served with notice of arbitration by TLP last Thursday with regards to a fire that broke out in an oil terminal in 2008.
TLP claims that it suffered losses and damages caused by the fire in a part of the facility, after the completion and handover of the project by Dialog E&C, due to the latter's breach of its obligations under the contract.
Although Kenanga Research expects there will be a negative knee-jerk reaction in its share price given the quantum of the claims, but understand that there is no provision to be made, until the decision of the case can be determined.
"We are neutral on the news for now, as arbitrations typically take years to be settled. Furthermore, we believe it is premature to make any conclusion at this juncture."
RHB Research said that the potential claim of RM546.6 million to RM561.2 million makes up about 37.5% to 38.6% of Dialog's equity as at Dec 2013.
"At this juncture, we are unable to determine the likelihood and actual quantum of the claim. We believe, however, this might be a long-drawn-out case and that the potential liability may eventually be smaller than the headline amount," it said.
Currently Dialog sits on a net debt position of RM397.9 million.
Meanwhile, Maybank IB Research said "Dialog will contest the matter and challenge these claims and has also indicated that no provision would be made pertaining to this matter for now."
The research house also believes that this incident is unlikely to derail its tank terminal expansion program at Pengerang, with its Phase 1 project to be commissioned progressively over 2014.
Kenanga said that the Balai field's risk service contract (RSC) has apparently hit first-oil and is due for extended well testing (EWT) programme by the first quarter of 2014.
"We have only expected earnings contributions from financial year 2017, and as such, any project acceleration would be further earnings catalyst for the company," it added.
RHB Research and Maybank IB Research have maintained a "buy" call on Dialog, with a target price of RM3.71 and RM3.90, respectively.
Dialog's share price closed 10 sen lower to RM3.59 last Friday.