This article first appeared in The Edge Financial Daily on February 11, 2020

Serba Dinamik Holdings Bhd
(Feb 10, RM2.30)
Maintain buy with an unchanged fair value of RM3: This implies a forecasted financial year ending Dec 31, 2020 (FY20F) price-earnings ratio (PER) of 18 times — 42% of Dialog Group Bhd’s 31 times, its closest peer in Malaysia.

The Edge Financial Daily reported that the group is in a preliminary stage of negotiations with the Sarawak state government to acquire Kuching-based Brooke Dockyard and Engineering Works Corp.

Brooke Dockyard, which has a major fabricator licence from Petroliam Nasional Bhd (Petronas) with an annual capacity of 25,000 tonnes, is able to undertake heavy engineering works for oil and gas offshore modules, substructures and shipbuilding.

Even though Serba Dinamik Holdings Bhd has its RM259 million Bintulu Integrated Energy Hub in Tanjung Kidurong to service engineering, procurement, fabrication, operation and management projects in Sarawak, this facility does not have dry dock capabilities to undertake vessels or large topside modules.

We understand that the financially distressed dockyard, which has incurred RM100 million losses on a contract, is being offered to Serba at a pricey RM150 million.

Measured against its yard size, the offer price translates into RM86 per sq ft (psf) — this is 54% above Malaysia Marine and Heavy Engineering’s RM56 psf currently based on its market capitalisation.

At the current offer price, we would not be in favour of Serba acquiring Brooke Dockyard unless the acquiree has managed to secure substantial contracts to support a value accretive proposition. However, we are sceptical that Petronas would be willing to award huge contracts unless Brook Dockyard had demonstrated good and timely execution on its projects.

Serba is currently trading at an undervalued FY20F PER of 13 times versus over 30 times for Dialog Group. — AmInvestment Bank, Feb 10