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Analysts positive on Serba Dinamik post private placement exercise, expect ‘stronger order book growth’

Analysts are positive on Serba Dinamik Holdings Bhd’s book building exercise for its 10% private placement with the issuance of 336.8 million new shares at RM1.51 that recently saw an oversubscription rate of 1.9 times. 

Hong Leong Investment Bank (HLIB) Research and AmInvestment Bank Research (AmResearch) have maintained their “buy” calls on the stock following this exercise and are expecting more future projects/jobs. 

HLIB’s analyst Low Jin Wu believes that the recent private placements from Serba Dinamik could be done to strengthen its balance sheet to secure more projects in the future. 

“Our channel checks suggest that Serba Dinamik is currently bidding for three EPCC (engineering, procurement, construction and commissioning) projects from Abu Dhabi and one EPCC project from Saudi Arabia with a total contract value of circa US$1 billion (RM4 billion). We believe that the prospects of Serba Dinamik winning at least two of these contracts are high but we did not include the potential job wins into our valuations to be conservative,” Low said in a note today where he maintained a “buy” on the stock with an unchanged target price of RM2.30 based on 13.5 times FY21 earnings per share (EPS).

Low added that post private placements, Serba Dinamik’s net gearing will fall from 0.8 times to 0.5 times, which “can be considered healthy”. 

Serba Dinamik’s founder Datuk Mohd Abdul Karim Abdullah had also subscribed to the placement raising his stake by 1.7% to 23.2%.

Meanwhile, AmResearch’s Alex Goh noted in a report today that “the group is poised for stronger order book growth” with the recent acquisition of the RM320 million Teluk Ramunia yard, which enhances and substantively expands the group’s existing strategic presence in Pengerang’s Refinery and Petrochemical Integrated Development.

“Including the RM1 billion contracts secured over the past month, we believe Serba Dinamik’s outstanding order book increased slightly by 1% [quarter-on-quarter] at RM18.7 billion. However, as previously highlighted, this locked-in future revenue has already exceeded the group’s earlier FY20F target of RM15 billion (+50% [year-on-year]), which was set in the beginning of 2020,” he added. 

HLIB’s Low said he maintained his “buy” call on Serba Dinamik as he believes among other things that the company would be able to maintain its high EBIT margins for its operations and maintenance (O&M) division, the recurring nature of its O&M orderbook would ensure earnings sustainability in the foreseeable future and earnings are expected to grow exponentially in FY22 when its Block 7 project hits its peak earnings phase.

AmResearch’s Goh also maintained a “buy” rating on Serba Dinamik. He has an unchanged fair value on the stock of RM2.20 per share based on a slightly lowered 22% discount to his diluted sum-of-parts (SOP) valuation of RM2.83 per share.

Goh said: “Our forecasts have been revised to account for the RM509 million gross proceeds, which reduce the group’s FY21F net gearing from 0.7 times currently to 0.4 times, while diluting FY21F–FY22F earnings per share (EPS) by 6%.”

“Even so, with the recent retracement in Serba Dinamik’s share price, the stock is currently trading at a highly compelling FY21F price-to-earnings (PE) of only nine times for an operation and maintenance service provider with a recurring income profile, while offering an attractive dividend yield of 5%,” noted Goh, adding that Serba Dinamik s closest peer Dialog Group currently trades at a price-to-earnings (P/E) ratio of over 30 times.

Goh said that while management has yet to provide fresh guidance for the group’s year-end 2021 order book, he expects additional contracts later this year as Serba Dinamik aims to lease parts of the 170-acre Teluk Ramunia yard to third parties while angling for fresh jobs in decommissioning, petrochemicals and renewable sectors.

Edited by Joyce Goh