This article first appeared in The Edge Financial Daily on November 2, 2018
Serba Dinamik Holdings Bhd
(Nov 1, RM3.99)
Maintain outperform with a target price (TP) of RM4.45: Yesterday Serba Dinamik Holdings Bhd announced its proposed acquisition of a 42.26% equity stake in E&E Gas Sdn Bhd, a company primarily engaged in the provision of integrated mid-scale liquefied natural gas (LNG) infrastructure, with the mode of settlement being the transfer of a land measuring approximately 10 acres (4.05ha) located in Mukim Lumut, Perak, valued at approximately RM16 million, and the proposed subscription of redeemable convertible preference shares in E&E Gas worth RM10.4 million, settled by cash — bringing the total equity injection into E&E Gas to approximately RM26.4 million. Simultaneously, Serba Dinamik was also awarded an engineering, procurement, construction and commissioning (EPCC) contract for offshore LNG distribution infrastructure facilities from E&E Gas located on the aforementioned land in Lumut, Perak, with a contract value of approximately RM332.8 million.
We are positive on Serba Dinamik’s 42.26% equity stake acquisition of E&E Gas. Seeing that it jives with the company’s strategy of asset ownership, it represents the company’s maiden venture into LNG, and more importantly, it adds further contract win prospects for Serba Dinamik, thus providing a synergistic value-add towards the company’s existing bread-and-butter business in operation and maintenance and EPCC. We see minimal impact on the firm’s balance sheet post-acquisition, with a net gearing level of around 0.3 times as at the end of the second quarter of 2018.
Meanwhile, we are also positive on the EPCC win of RM332.8 million, adding further visibility towards the company’s growth prospects. This brings its year-to-date new contract wins to around RM2.5 billion, bumping up the company’s order book to RM7.5 billion. We expect gross margins for the EPCC contract to be around 17%, in line with Serba Dinamik’s historical average. We have made no changes to our financial year 2018 (FY18) to FY19 estimated (E) numbers as the new win is still within our order book replenishment assumption of RM3 billion. — Kenanga Research, Nov 1