Tuesday, Oct 10, 2000
Dialog Group Berhad’s (DGB) ‘AA-‘ corporate credit rating is affirmed. DGB continues to maintain a strong financial profile, supported by a well-above-average business position in the highly specialised oil, gas and petrochemical industry. Increasing diversification of the company’s revenue base, DGB’s ability to take advantage of the generally favourable outlook for gas infrastructure related construction, and its conservative financial posture will somewhat offset the risk associated with the reduced prospects for new investments by the petrochemical sector in the near term.
DGB is an investment holding company whose subsidiaries and associates provide engineering, procurement, construction and commissioning services (EPCC), marketing of specialty chemicals and equipment and provision of specialist technical services, provision of plant maintenance services, petroleum retailing and provision of centralised tankage facilities to the oil, gas and petrochemical industry. Operational strength is reinforced by the group’s highly experienced management team with over 1,500 man-year experience in the oil, gas and petrochemical industry, and established record of safety and timely project completion within budgeted cost and quality parameters. The ISO9001 accreditation of its construction arm and DGB’s good working relationship with multinational oil, gas and petrochemical companies provide significant competitive advantages. DGB’s ability to undertake various sub-contracting assignments enhances its flexibility in bidding for construction contracts in the oil, gas and petrochemical industry.
The main revenue contributor has been the EPCC contracts/construction projects contributing on average about 76% of its revenue for the past six years. During the current financial year, DGB has successfully procured RM219.0 million worth of new contracts of which a large portion was contributed by the contract with Kvaerner Petrominco Engineering Sdn Bhd for the construction and construction management services for the butanediol complex project in Gebeng, Kuantan for BASF PETRONAS Chemicals Sdn Bhd. DGB’s order book is expected to grow further should they secure the EPCC contract for the construction of centralised storage terminals for Penang Port. The success of the project alliancing concept in the implementation of the Kertih Centralized Terminal Facilities (KCTF) and Acetyls projects will see more of its future projects adopting this method. Besides drawing on the expertise and resources of each project partner, the alliance concept facilitates effective management of project costs and mitigates collection risk under the EPCC contracts. Revenue from plant maintenance services, the sale of specialty chemical products and services to the ASEAN region and China and related technical/consultancy services accounted for the balance of the group’s revenue base.
A generally favourable outlook for gas infrastructure related construction counterbalances a likely slowdown in construction activities in the petrochemical sector. Rising electricity demand growth provides support for new investments in the domestic gas infrastructure in the intermediate term given the popularity of gas as the fuel of choice for new power plants.
The group continues to achieve consistently strong profitability. Revenue and profit have been growing at a CAGR of 37.6% and 52.3% respectively for the last six years with continued improvement in operating profit margins. Revenue growth in the near term will be moderated by lower contributions from EPCC contracts. Increasing revenue diversification into non-construction related oil, gas and petrochemical projects will reduce DGB’s reliance on the more cyclical but highly specialized construction sector. DGB’s cash flow coverage ratios continue to remain strong due to minimal debt-servicing requirement. However, MARC expects DGB’s cash flow coverage ratios to weaken in the near term as accumulated cash reserves are drawn down to fund new capital expenditures. While debt service coverage ratio is expected to decline, it is still considered strong at a projected 7.41x in FY2003. Group capitalization remains solid, strengthened over the years through the retention of earnings. DGB has repaid its long-term borrowings in FY2000 while maintaining trade finance and working capital lines with various financial institutions. MARC does not expect the current low debt levels to be sustained over the near term on the back of rising capital expenditure needs. However, the reliance on the cash call method (advance payment from project sponsors) to fund major projects will moderate the increase in leverage.
The very low leverage, comfortable amount of unutilised credit lines, growing capital base and the presence of strong institutional shareholders accord the group with good financial flexibility.
DGB is an investment holding company whose subsidiaries and associates provide engineering, procurement, construction and commissioning services (EPCC), marketing of specialty chemicals and equipment and provision of specialist technical services, provision of plant maintenance services, petroleum retailing and provision of centralised tankage facilities to the oil, gas and petrochemical industry. Operational strength is reinforced by the group’s highly experienced management team with over 1,500 man-year experience in the oil, gas and petrochemical industry, and established record of safety and timely project completion within budgeted cost and quality parameters. The ISO9001 accreditation of its construction arm and DGB’s good working relationship with multinational oil, gas and petrochemical companies provide significant competitive advantages. DGB’s ability to undertake various sub-contracting assignments enhances its flexibility in bidding for construction contracts in the oil, gas and petrochemical industry.
The main revenue contributor has been the EPCC contracts/construction projects contributing on average about 76% of its revenue for the past six years. During the current financial year, DGB has successfully procured RM219.0 million worth of new contracts of which a large portion was contributed by the contract with Kvaerner Petrominco Engineering Sdn Bhd for the construction and construction management services for the butanediol complex project in Gebeng, Kuantan for BASF PETRONAS Chemicals Sdn Bhd. DGB’s order book is expected to grow further should they secure the EPCC contract for the construction of centralised storage terminals for Penang Port. The success of the project alliancing concept in the implementation of the Kertih Centralized Terminal Facilities (KCTF) and Acetyls projects will see more of its future projects adopting this method. Besides drawing on the expertise and resources of each project partner, the alliance concept facilitates effective management of project costs and mitigates collection risk under the EPCC contracts. Revenue from plant maintenance services, the sale of specialty chemical products and services to the ASEAN region and China and related technical/consultancy services accounted for the balance of the group’s revenue base.
A generally favourable outlook for gas infrastructure related construction counterbalances a likely slowdown in construction activities in the petrochemical sector. Rising electricity demand growth provides support for new investments in the domestic gas infrastructure in the intermediate term given the popularity of gas as the fuel of choice for new power plants.
The group continues to achieve consistently strong profitability. Revenue and profit have been growing at a CAGR of 37.6% and 52.3% respectively for the last six years with continued improvement in operating profit margins. Revenue growth in the near term will be moderated by lower contributions from EPCC contracts. Increasing revenue diversification into non-construction related oil, gas and petrochemical projects will reduce DGB’s reliance on the more cyclical but highly specialized construction sector. DGB’s cash flow coverage ratios continue to remain strong due to minimal debt-servicing requirement. However, MARC expects DGB’s cash flow coverage ratios to weaken in the near term as accumulated cash reserves are drawn down to fund new capital expenditures. While debt service coverage ratio is expected to decline, it is still considered strong at a projected 7.41x in FY2003. Group capitalization remains solid, strengthened over the years through the retention of earnings. DGB has repaid its long-term borrowings in FY2000 while maintaining trade finance and working capital lines with various financial institutions. MARC does not expect the current low debt levels to be sustained over the near term on the back of rising capital expenditure needs. However, the reliance on the cash call method (advance payment from project sponsors) to fund major projects will moderate the increase in leverage.
The very low leverage, comfortable amount of unutilised credit lines, growing capital base and the presence of strong institutional shareholders accord the group with good financial flexibility.