This article first appeared in The Edge Financial Daily on October 26, 2017

Serba Dinamik Holdings Bhd
(Oct 25, RM2.60)
Maintain outperform with a target price (TP) of RM2.85: Serba Dinamik Holdings Bhd has proposed to acquire a 16-storey office building for RM43.5 million in Shah Alam, as disclosed in the initial public offering (IPO) prospectus, as part of its future plan for its corporate office, to house its head office and operational staff. The purchase will be satisfied by cash, whereby RM30 million will be financed through the proceeds from the IPO and the remainder from internally generated funds and/or bank borrowings. 

We continue to maintain our “outperform” recommendation with a TP of RM2.85 based on our 12 times price-earnings (PE) multiple to our financial year 2018 forecast (FY18F) earnings per share of 23.8 sen. We understand the proposed building acquisition is currently Bangunan Affin Bank, Shah Alam. 

The building has a four-storey basement carpark. The building acquisition is in line with Serba Dinamik’s intentions to acquire a corporate office building to: i) accommodate the increased number of employees; ii) house its employees in one main location to increase operational efficiency, minimising logistic movements and costs with a more efficient use of man-hours; iii) provide its employees with a comfortable and conducive work environment to enhance productivity and performance; and iv) enhance the visibility of its brand and elevate its corporate image and brand consciousness among its customers, suppliers, employees and other stakeholders.  

Assuming that RM13.5 million is funded by bank borrowings, the consolidated gearing of Serba Dinamik will increase from 0.79 times to 0.81 times based on the audited consolidated statement of financial position of the group as at Dec 31, 2016. 

The group will continue to be supported by its core activities in operation and maintenance (O&M), and engineering, procurement, construction and commissioning (EPCC). The group’s robust RM10 billion bid book for the next three years will comprise 70% O&M contracts and 30% EPCC. — PublicInvest Research, Oct 25