KUALA LUMPUR (July 8): Serba Dinamik Holdings Bhd’s sale of its entire 25.2% stake in Singapore associate CSE Global Ltd for S$57.67 million (RM177.33 million) is deemed neutral by AmBank Research.

This is due to the fact that the absence of earnings contributions from CSE is offset by incoming dividend payouts and a one-off foreign exchange (forex) gain of RM6 million from the stake sale, while cash from the sales proceeds will also reduce its net gearing to an estimated 57% from 63% currently, said AmBank Research analyst Alex Goh in a note.

“The selling price of S$0.45/share translates into a prevailing PER (price-earnings ratio) of 10 times based on CSE’s FY19 net profit of RM24 million (for the financial year ended Dec 31, 2019).

“Assuming an interest saving rate of 5%, we estimate that the loss of the associate's contributions will lead to a slight FY21 net profit decline of 1%,” said Goh, who maintained his "buy" call on the sector with an unchanged fair value (FV) of RM2.20.

Serba Dinamik acquired the 24.84% stake in CSE in 2018 at the same price of S$57.67 million, or RM170.6 million at the time. 

"Serba Dinamik’s initial plan was to tap into CSE’s global network and leverage its oil and gas customer base. 

“While collaborating in multiple projects overseas, management eventually viewed that CSE’s business objectives were not compatible with Serba Dinamik despite a fair earnings yield of 10%,” he explained. 

Proceeds from the sale will be used for working capital, which Serba Dinamik said will generate higher earnings accretion.

According to Goh, Serba Dinamik affirmed that it had no plan to divest any other investments and associates at this juncture, citing that they remain synergistic with the group.

He pointed to Serba Dinamik’s RM17.5 billion order book, of which 44% comes from the massive US$1.8 billion Innovation Hub property development project in Abu Dhabi. 

“This provides good earnings visibility that together with its recurring income profile and lower balance sheet risks translate into an unjustified FY21 PER forecast of only nine times versus its closest peer Dialog Group Bhd, which has a PER of over 30 times,” the analyst said. 

Shares in Serba Dinamik traded unchanged at RM1.70 at the time of writing today, valuing the group at RM5.76 billion.