This article first appeared in The Edge Financial Daily on August 21, 2017
Serba Dinamik Holdings Bhd
(Aug 18, RM2.16)
Maintain outperform call with a target price (TP) of RM2.85: Serba Dinamik Holdings Bhd’s (Serba) wholly-owned subsidiary Serba Dinamik Sdn Bhd (Serba Dinamik) intends to sign two memorandum of agreements (MoAs) with Izin Budi Sdn Bhd and Almurisi Holding Sdn Bhd to participate in the development of about 132 acres (53.42ha) of industrial, commercial and residential projects in Pengerang, Johor.
The MoA with Izin Budi is to jointly develop industrial and commercial projects on about 15.87 acres (6.42ha) of land in Bukit Pelali, Pengerang, Johor. The MoA with Almurisi Holding Sdn Bhd is to participate in the construction activities of a 70-acre mixed residential and commercial development in Pantai Timur, Johor.
The Pengerang Eco-Industrial Park (PeIP) is strategically located near the Pengerang Deepwater Terminal (PDT) at the Pengerang Integrated Petroleum Complex (PIPC). Serba will be working with various partners such as Perisind Samudra Sdn Bhd, which will be managing the project, and Vital Factor Consulting Sdn Bhd. Perisind Samudra is a wholly-owned subsidiary of Perbadanan Islam Johor (PIJ) Holdings, established by the Johor state government, and owns substantial land bank in Pengerang. Vital Factor Consulting will aid in the development of the master plan, including assessing the financial feasibility of the integrated development.
The maintenance,repair and overhaul (MRO) and inspection, repair and maintenance (IRM) Global Centre of Excellence is to be situated next to PeIP and will be a part of the 132-acre integrated project. The centre is expected to draw domestic and international service providers to establish their presence in the industrial development on a 35-acre (14.16ha) plot of land. This is synergistic with the group’s core operations of seven service centres in Miri and Bintulu in Sarawak, Labuan, Klang in Selangor, Bandar Penawar in Johor and Paka in Terengganu.
The group’s foreign operations are also present in Indonesia, Bahrain, the UAE and the UK.
Serba Dinamik, at its initial public offering (IPO), had stated that it earmarked RM20 million of its proceeds to establish a new fabrication facility to support engineering, procurement, construction and commissioning (EPCC) works and IRM services in Johor, which we believe is for this project. This new facility will support its fabrication works for the Refinery and Petrochemical Integrated Development (Rapid) project in southern Johor. As Rapid is within the PIPC, it will also enable the group to participate in potential future projects within the PIPC.
We like Serba Dinamik, supported by its core activities in operations and maintenance (O&M) and EPCC, driven by its expansion into international markets which, by its track record, has historically seen about 80% of its contracts renewed. The group’s robust RM10 billion bid book for the next three years will comprise about 70% of O&M contracts and about 30% of EPCC. Our “outperform” call with a TP of RM2.85 pegged at a 12 times price-to-earnings (PER) multiple is based on our financial year 2018 forecast (FY18F) earnings per share (EPS) of 23.8 sen.
Serba has been appointed by the international trade and industry ministry since December 2015 as the anchor company for the Vendor Development Programme (VDP) to nurture SMEs into becoming global service providers. With seven vendors under its belt to-date, the PeIP will continue to support this initiative while providing a designated area for the VDP companies.
PeIP will also integrate technical and vocational education and training (TVET), to develop relevant oil and gas (O&G) and petrochemical industry skills for Malaysians and targeted at Johoreans to have the opportunity to adopt skills for these industries.
This is in line with Serba’s approved City and Guilds training centres, and offers approved City and Guilds technical training programmes. Serba has been providing certified courses by the Engineering Construction Industry Training Board as well as vibration specialist training programmes based on ISO 18436 certified by the Institute of Materials Malaysia.
To complement the MRO and IRM Global Centre of Excellence, PeIP will incorporate an 18-acre Plant Turnaround Village. The facility being close to Pengerang’s O&G and petrochemical plants would enable provision of prompt services efficiently. The turnaround plant is a mandatory requirement for O&G and petrochemical operations where the entire plant is shut down for maintenance and repair to ensure operational safety and efficiencies are met. The plant requirement for turnaround ranges from as often as every 18 months up to three to five years. As plant turnarounds are costly, the shutdown period is expected to be as short as possible, from two weeks up to six weeks at most. Commonly, the retrofitting, upgrading and rejuvenation works are carried out during this period. The turnaround thus requires a large space and quick access to key support services such as MRO, IRM, fabrication, pipe spooling and logistics services which Serba’s PeIP has planned for.
The Pengerang International Commercial Centre’s (PICC) development spanning over nine acres will house corporate offices, service apartments and residences for senior management.
Pengerang Northshore Residence is a 70-acre mixed residential and commercial development, designed to provide homes, and community facilities, amenities and services to personnel working at PeIP and PICC, PIC, PIPC and PDT.
Catalysts include Petronas’ largest downstream investment at US$27 billion (RM115.83 billion) for the PIPC and Rapid, coupled with six associated facilities, which are scheduled to start up by the second half of financial year 2019. — PublicInvest Research, Aug 18