Serba Dinamik’s growth momentum expected to remain strong

TheEdge Mon, Aug 26, 2019 10:07am - 4 years View Original


Serba Dinamik Holdings Bhd
(Aug 23, RM4.29)
Maintain buy with an unchanged fair value (FV) of RM6.50:
We maintain our “buy” call on Serba Dinamik Holdings Bhd with unchanged forecasts and sum-of-parts-based FV of RM6.50 a share, implying a forecasted financial year 2019 (FY19F) price earnings ratio (PE) of 20 times - 44% below Dialog Group Bhd’s 36 times, the company’s closest peer in Malaysia.

 
These are the key highlights of an analyst briefing last Friday: While founder and substantial shareholder Datuk Mohd Abdul Karim has launched a mandatory general offer in his personal capacity for the remaining shares in building products and property developer Sarawak Consolidated Industries Bhd (SCIB), he will not be in an executive position in the group. With an effective 49% equity stake in SCIB, he will likely be a non-executive chairman.

This is similar to his private vehicle fabric manufacturer Kumpulan Powernet Bhd, where Abdul Karim has a 20% equity stake and holds a non-executive deputy chairman role. As he will be nominating his own chief executive officer (CEO) for SCIB, Abdul Karim will remain fully focused and committed to his executive group managing director/CEO responsibilities in Serba.

Serba will remain focused on expanding its operations and maintenance (O&M) and engineering, procurement, construction and commissioning (EPCC) businesses, while avoiding volatile and cycle-driven upstream exploration and production operations. While the group has multiple geographical presence across the globe, Serba does not intend to venture into the China market given the need to build a marketing network and unfamiliarity with a country which has its own strong capabilities

Serba will continue to prefer O&M jobs given their recurring and longer-term revenue profile as compared with lumpy EPCC jobs which currently have lower earnings before interest, taxes, depreciation and amortisation margins (15% versus 18% for O&M) due to intense market competition.

The management appears confident that the group’s order book target of RM10 billion is likely to be achieved before the end of the year — 11% from RM9 billion currently and 33% from RM7.5 billion in the fourth quarter of FY18 (4QFY18).

Growth momentum will remain strong next year with the completion of the Bintulu integrated energy service hub in the first quarter of 2020 given the award of Petronas Carigali’s maintenance, construction and modification for the Miri crude oil terminal and Asam Paya onshore facilities, Bintulu integrated plants and Samalaju Industrial Park.

The rise in Serba’s net gearing to 0.6  times in 2QFY19 from 0.5 times in 1QFY19, and could reach 0.8 times by the end of the year may lead to an equity-raising exercise in the form of perpetual securities or private placement. However, we expect any potential equity placement to be partly mitigated by the group’s strong value-accretive revenue growth amid commencement of the Pengerang Integrated Development’s property launches.

Nevertheless, Serba is currently trading at a grossly undervalued FY20F PE of 12 times versus 34 times for Dialog Group — Serba’s closest peer with a recurring income profile in the oil and gas sector. — AmInvestment Bank, Aug 23

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






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