PETALING JAYA: Dialog Group Bhd is undertaking its maiden investment into the downstream petrochemicals business through a joint venture to build, own and operate a food-grade recycled polyethylene terephthalate (PET) pellet production facility in Nilai, Negri Sembilan.

       This followed a memorandum of understanding with Diyou Fibre Sdn Bhd on a 51:49 ratio.

       Analysts are “mildly positive’’ on the potential recycling project as it supports Dialog’s environmental, social and corporate governance (ESG) initiatives.

       Business-wise, the venture will see the usage of recycled PET flakes as raw material to produce food grade recycled PET pellets for sale.

       Public Investment Bank (PublicInvest) expected increasing demand for food grade recycled PET materials resulting from the drive by the international community to support a circular economy.

       According to the research firm, the global recycled PET market size is expected to reach US$14.4bil (RM60.96bil) by 2028 or growing at a compounded annual growth rate of 6.7%.

       “The growing beverage industry in countries such as China, India, Japan, South Korea, Vietnam, and the Philippines is expected to drive the global recycled PET market over the period.

       In addition, rising concerns about the sustainability of natural resources in north America and Europe are expected to have a positive influence on the product demand over the forecast period,” it said in a report yesterday.

       Citing the European Union (EU) targets, it said plastic bottles in the EU would contain at least 30% recycled content by 2030.

       Meanwhile, in the UK, there will be an introduction of plastic packaging tax from April 2022 to manufacturers that do not contain at least 30% recycled plastic.

       Based on the investment cost, the projected internal rate of return of 10% and debt-to-equity ratio of 80:20, the project, if it materialises, will not have any significant impact to Dialog’s sum-of-parts (SOP) or financial year 2022 forecast earnings, according to AmInvestment Research (AmInvestment).

       However, the consolidation of debt could raise the group’s low FY22F net gearing levels slightly to 20% from 18%.

       The stock, which trades at FY22’s price earnings of 22 times (below its five-year peak of 39 times), deserves above-peer premium valuations given its long-term recurring cash flow-generating businesses, according to the research house.

       This is further underpinned by the Pengerang in Johor development and its low net gearing levels.

       AmInvestment maintains a “buy” on the stock with unchanged forecasts and SOP fair value of RM4.15 per share.

       Meanwhile, PublicInvest has an “outperform” call and keeps its target price at RM3.86.