Inter-Pacific starts coverage on Serba Dinamik with 'buy' call

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KUALA LUMPUR (Sept 21): Inter-Pacific Research Sdn Bhd said today it initiated coverage on Serba Dinamik Holdings Bhd shares with a "buy" recommendation and target price of RM2.72 after taking into account the energy services group's resilient earnings and continued growth.

In a note today, Inter-Pacific analyst Daryl Law Shih Shion said Serba Dinamik's forward earnings are expected to be driven by strong engineering, procurement, construction and commissioning segment's contributions from recently awarded projects, barring any development delays.

"Serba Dinamik is undervalued at this juncture, given its strong consistent performance, aggressive order-book growth (company internal target of 20% year-on-year growth), and in comparison [with] its closest peer, Dialog Group Bhd, that is trading at approximately 30x PER (price-earnings ratio), in our view," Law said.

"We give Serba Dinamik a 'buy' with a target price of RM2.72, a potential upside of 58%. We derive our target price from ascribing a target PER of 13x to our CY21F EPS estimate of 20.9 sen, implying a 12% y-o-y earnings growth from our CY20F estimate of 18.2 sen," he said.

CY stands for calendar year.

According to Law, the potential upside of 58% is based on Serba Dinamik's previous closing share price of RM1.72. At that price, he said Serba Dinamik is valued at a PER of 10.7 times versus a simple industry average of 18.3 times.

He said the simple industry average includes valuation of companies like Dialog and Sapura Energy Bhd.

Law said Inter-Pacific likes Serba Dinamik for its strong market position, diverse geographic presence and stable revenue from maintenance projects.

Key downside risks for Serba Dinamik include slower orderbook replenishment and growth, he said.

On Bursa Malaysia today, Serba Dinamik's share price closed down five sen or 2.91% at RM1.67 for a market value of RM5.63 billion.

The stock saw 3.58 million shares traded.