SERBA Dinamik Holdings Bhd is set to debut on Bursa Malaysia on Feb 8, raising RM407.1 million from the initial public offering (IPO). Based on its RM1.50 per share offer price, its implied market capitalisation would be just over RM2 billion.
The energy services and engineering group’s listing will be one of two Main Market listings in a single week, following two ACE Market IPOs last month. It is set to become the largest listing since July 2015, when Sunway Construction Group Bhd raised RM550 million.
The company has operations in Malaysia, Indonesia, the United Arab Emirates (UAE), Bahrain and the UK. It provides operation and maintenance (O&M) and engineering, procurement, construction and commissioning (EPCC) services to the oil and gas (O&G) and power generation sectors.
Locally, Serba Dinamik is among the leading providers of maintenance, repair and operations services for rotating equipment to the O&G sector. Its direct competitors in this segment are SapuraKencana Petroleum Bhd and Deleum Bhd.
Serba Dinamik is led by group CEO and executive director Datuk Dr Ir Mohd Abdul Karim Abdullah, who co-founded the company in 1993. He is the single largest shareholder with 36.51% equity interest pre-IPO.
Non-executive director Abdul Kadier Sahib owns a 28.96% stake while deputy CEO Datuk Awang Daud Awang Putera controls another 18.46%. Post-IPO, Abdul Karim will remain the single largest shareholder with a 26.1% stake, followed by Abdul Kadier with 20.71% equity interest and Awang Daud with 13.21%.
In recent years, approximately two-thirds of its annual revenue has come from O&M operations. In the financial year ended Dec 31, 2015 (FY2015), the company reported RM1.4 billion in revenue, up 85.7% year on year, and profit after tax of RM156.56 million, a 132% improvement from the previous year.
The company has earmarked 73.69% of the proceeds of the IPO (RM300 million) for the expansion of its operational facilities and overall business. Another 14.74% will go to repaying bank borrowings while 7.2% will be used as working capital.
From the RM300 million, about 45% will be used to set up new facilities across Sarawak and Johor, in addition to acquiring a new corporate building in Selangor and upgrading its facilities locally and in the UAE.
The rest will be used for acquisitions, in addition to developing small gas power plants and water utilities in Indonesia over the next three years.
While it may sound counter-intuitive to list an O&G-linked company during a global O&G downturn, the silver lining for Serba Dinamik is that 60% of its revenue comes from the downstream segment, which is more resilient in the low crude oil price environment.
In a pre-IPO note, TA Securities called Serba Dinamik a success story from Petroliam Nasional Bhd’s vendor development programme. After being selected to be a vendor in 1997 and graduating in 2007, the company leveraged its track record to expand internationally, it says. “We note that revenue from international businesses surpassed local revenue in FY2015 and the group intends to extend this lead,” TA Securities says in a Jan 6 research report. “We understand that it is rather difficult to begin operations in the Middle East given the tight regulations imposed in the region. However, given that the group has established a solid foothold in the area (for over 15 years), we opine that Serba Dinamik will be able to secure more contracts in this region going forward.”
Among five pre-IPO research reports on Serba Dinamik, target prices range from Mercury Securities’ RM1.80 to RM2.13 set by Affin Hwang Capital. Based on the IPO price of RM1.50, this implies a potential upside of at least 20%.
It will adopt a policy of paying out at least 30% of profit after tax as dividends annually.
According to Public Investment Bank, the company’s RM3.6 billion outstanding order book will sustain growth for FY2017. Of this figure, up to 70% is from operations outside of Malaysia.
“We expect Serba Dinamik’s revenue to grow 9.7% in FY2017 and 6.8% in FY2018, due to the renewal of its O&M contracts as well as the commencement of its EPCC jobs,” says RHB Investment Bank. “We have assumed a 65%:35% split between international and local O&M projects.”
Going forward, Public Investment Bank expects gross profit margins to remain around the 16.6% seen in FY2015.
“Margins may seem to be trending downward slightly due to intensifying competition coupled with continued higher costs, despite revenue strengthening,” Public Investment Bank says.
“We do, however, see net margins trending at a sustained level of about 11% with the expansion in capacity coupled with continued penetration into markets with better margins for the longer-term.”
That said, the challenging macro environment that the company is operating in means there is a risk of a slowdown ahead, cautions Affin Hwang Capital. RHB Investment Bank concurs, noting that the main risks ahead are lower-than-expected order book replenishment as well as stiff competition from its rivals.
Other risk factors include further fluctuation in oil and gas prices and foreign exchange fluctuations. It should be noted that 95.84% of Serba Dinamik’s RM473.33 million in borrowings are floating-rate loans, meaning any upward movement in base lending rates may increase its interest expenses.
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