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Serba Dinamik’s new buys expected to further develop its MRO capabilities

Serba Dinamik Holdings Bhd announced another two acquisitions from Liberty Industries BV for 450 shares or a 25% equity interest in Psicon BV, and Frank Koper for 6,000 shares or a 100% equity interest in Psicon AVV, for a total cash consideration of around RM6.5 million.

While not particularly surprising as these are in line with the group’s strategy in strengthening on its forte, we are positive as these acquisitions further develop the group’s capabilities in the maintenance, repair and overhaul (MRO) of rotating equipment as well as provide opportunities to access projects and markets which are complementary to the group.

Hence, our “outperform” call for Serba Dinamik is affirmed, with TP kept unchanged at RM4.69 based on an around 14 times multiple to financial year 2019 earnings per share (EPS) of 33.5 sen. We remain optimistic about the group’s growth prospects underpinned by increased demand for asset maintenance as well as on its asset ownership business model which will provide stable earnings streams.

The acquisitions consist of: i) 450 ordinary shares of €10 (RM48.10) each in Psicon BV, representing a 25% equity interest in Psicon BV, for a total cash consideration of €400,000; and ii) 6,000 ordinary shares of US$1 (RM4.15) each in Psicon AVV, representing a 100% equity interest in Psicon AVV, for a total cash consideration of US$1.1 million. Psicon BV is a company incorporated in the Netherlands while Psicon AVV is a company incorporated in Aruba, Kingdom of the Netherlands.

Both companies are focused on three business areas, namely rotating equipment performance upgrading, process module engineering (gas flow related), and trading and supply of steam turbines and spare parts within Europe, Africa, the Middle East and the Far East. As such, the acquisitions will further develop the group’s capabilities in its MRO business while providing opportunities to access projects and markets which are complementary to the group.

The acquisition will be financed entirely by cash via the proceeds from the initial public offering of which RM95 million has already been allocated for business expansions through investments and acquisitions. Given the few rounds of acquisitions this year, we expect gearing will jump significantly from 0.25 times in FY17 to about 0.5 times by the end of this year though we reckon levels are still manageable.

Although we are positive on the future earnings contribution from these two developments, it will likely be longer term in nature and marginally incremental for now. As such, no change to our earnings forecast at this juncture. — PublicInvest Research, Sept 12