KUALA LUMPUR: Research firms are optimistic about Dialog Group Bhd's US$235 million investment decision for the Baram Junior Cluster Small Field Asset Production Sharing Contract (BJC SFA PSC).
The project is entering its two-year development phase after a two-year pre-development period, followed by a 10-year production phase.
Public Investment Bank (PublicInvest) remains positive about the project, which is expected to generate a 10-12 per cent internal rate of return (IRR) with 50-60 per cent debt financing.
However, it noted the lack of detailed information on reserves, production assumptions, and operating costs.
As a result, PublicInvest maintained a "Neutral" rating on Dialog with a target price of RM2.12.
Hong Leong Investment Bank (HLIB Research) estimates the project could generate US$33 million in free cash flow annually, assuming a 15 per cent IRR and US$164.5 million in capital expenditure. It has set the project's net present value (NPV) at US$35 million (RM158 million).
Despite this, HLIB believes this will contribute only three sen per share to Dialog's equity value and is waiting for further production guidance.
HLIB Research maintained its "Buy" rating with a target price of RM3.12, highlighting Dialog's recurring income model and its growth potential in Pengerang.
RHB Investment Bank (RHB Research) also expressed optimism, noting that the project will expand Dialog's domestic upstream assets.
It pointed out that the BJC project is located near existing infrastructure, potentially reducing capital expenditure.
With Dialog's strong balance sheet and RM455 million in net cash as of 2QFY25, RHB believes the company can handle the equity outlay of US$66 million, assuming 60 per cent debt funding. RHB maintained a "Buy" rating on Dialog, raising the target price to RM3.11 from RM3.09.