Choivo Capital

Author: Choivo Capital   |   Latest post: Mon, 25 May 2020, 8:40 PM


(CHOIVO CAPITAL) Something is weird in the State of Serba Dinamik Holdings Berhad (SERBADK: 5279)

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For a copy with better formatting, go here, its alot easier on the eyes.

 Something is weird in the State of Serba Dinamik Holdings Berhad (SERBADK: 5279)


A few days ago, a friend of mine was quite excited about Serba Dinamik Holdings Berhad (“SERBADK”) and asked me to look. And having missed out on a few palm oil companies (despite doing research together, I might add. I am this untalented at trading. Thankfully, I held on and topped up my SOP at the bottom), I figured I better take a look.

Serba Dinamik was a company that I kept my eye on for some time. And I quite liked their annual report management explanations, as it seemed relatively clear by Malaysian standards, however, I never really did any analysis before.

The management spoke a lot about very nice sounding things and buzzwords such as, “Smart Maintenance Contracts”, “Project Development”, “IT Projects” etc, and even had a nice 7 part episode on the company on Astro Awani.


However, to be honest, it sounded a bit like the typical things that any CEO in the world would say, I mean, how long has it been since Tan Sri Shahril talked about SAPRNG making a profit?

And just after an RM8bil fund injection into it by PNB to save Maybank (they held a big chunk of SAPRNGS loan book), its now looking like it might still go down at any day again, with Current Liabilities again exceeding Current Assets.

And taking a quick look at the numbers of SERBADK, they sure raise some eyebrows.


Owners Earnings

Now the tool that we are going to use in our analysis is called “Owners Earnings”. It is a valuation method detailed by Warren Buffet in Berkshire Hathaways 1986 annual report. Warren Buffet stated that the value of a company is simply the total of the net cash flows (owner earnings) expected to occur over the life of the business, minus any reinvestment of earnings.

It is defined by him as such,


"These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges, less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume.

Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since (c) must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes.

All of this points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports. These numbers routinely include (a) plus (b) - but do not subtract (c)."


In essence, it means,

Owners Earnings =

(a) Reported Earnings

Add: (b) Depreciation and Amortization

Add/Less: (c) Other Non Cash Items

Less: (d) Average Annual Maintenance Capex

Add/Less: (e) Changes in Working capital.


For the sake of simplicity, we are going to use “Total Comprehensive Income” for “Reported Earnings” and “Capital Expenditure & Acquisitions of Companies” as “Average Annual Maintenance Capital Expenditure”.

For the second, the main reason we use the total expenditure instead of calculating the average annual maintenance capex is due to how difficult it is to get a meaningful number for “Maintenance Capex”.

In addition, the amount they spend on capital expenditures is not the main point, as in terms of accounting profit, they very clearly seem to be putting all that Capex to good use.

Now why owner’s earnings?

Because the P/L can show whatever numbers they want, but at the end of the day, the number that really matters is how much of it goes back into the owner’s pockets, as we have very clearly seen with London Biscuits recent PN17 status.

So, what does it look like for SERBADK?




As you can see, its quite incredible how since 2013 this Company have recorded huge negative Owners Earnings.

Having said that, if we were to exclude Capital Expenditures, on a net basis RM333.2 million in cash have been generated, out of which,  dividends totaling RM284.5 million have been paid since 2014.  

Having said that the cash generated (on a owners earnings basis) is a far cry from the profit reported, and this is from the incredible increase in working capital requirements each year.

When compared against their Revenue and Comprehensive Income,



Its interesting to note, that the growth in Capital Assets, far exceed that of the growth in Income and Revenue. And considering that these assets are the kind that relies on new projects (which can be very lumpy and irregular) in order to be utilized, It does not seem to bode well.

Look at Sapura Energy etc.

In addition, the increase in Working Capital on the Asset end of the balance sheet have far exceeded the growth in revenue. However, on the liability end, we are looking at a strong drop in working capital.

This indicates that the credit period they obtained from creditors seem to be shortening, while the credit they give to debtors seem to be holding steady or increase.

Easy to pay money to creditors, but collecting money seems to take quite a bit longer. Which is interesting




I may very well be extremely wrong,  and this may very well just be initial capex cost in their path of world domination, however I digress.

If you were to do an owners earnings analysis of SAPRNG from 2008 to 2019, it looks surprisingly similar. Having said that, so do most extremely ambitious companies planning to expand via aggressive debt and fund raising programmes. 

I hope I’m wrong, as i have no skin in game, it matters not to me if im right.

As usual, feel free to let me know if you think differently or if you feel I’m wrong.


Disclaimers: Refer here.



Facebook: Choivo Capital
Website: www.choivocapital.com
Email: choivocapital@gmail.com

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Chart Stock Name Last Change Volume 
SERBADK 1.75 -0.04 (2.23%) 27,644,300 

  2 people like this.
vespa Well done Choivo. Just as you I am not invested here but thanks for the heads up with excellent work.
22/12/2019 4:21 AM
Icon8888 I don’t like it too
22/12/2019 7:36 AM
Sslee Hahahaha,
qqq3 as usual live dangerously, love this stock and will be eaten alive like London Biscuit and Sendai.
22/12/2019 8:27 AM
JensenChin Have Screenshot this post and sent to Serba’s legal counsel again.

Will follow up on the email to legal counsel, police report and report made to MCMC on baseless accusation and fake news spread by Choivo Capital.

Hope Choivo Capital will be sued for spreading fake news

Don’t think you deleted the post you can’t be tracked.
22/12/2019 8:34 AM
Up_down Working capital = Current Assets – Current Liabilities. Figures in Total working capital is seen not correctly presented.
22/12/2019 9:11 AM
i3lurker its ok dun worry

i3 level punya standard is very poor.
Sharks are every where.
Its understood that articles in i3 are ALL FAKES.
Everyone knows the articles in i3 are ALL FAKES
dun lose sleep over it.

dun bother.

Up_down Working capital = Current Assets – Current Liabilities. Figures in Total working capital is seen not correctly presented.
22/12/2019 9:11 AM
22/12/2019 9:41 AM
DK66 Choivo, thankful for sharing your thoughts.

If I may comment,

I agree that "Owners earnings" gives a better representation of a company's earnings and I also agree that it is extremely difficult to obtain "maintenance capex". However, I find it also difficult to agree with the "simplicity" you proposed below;

[ For the sake of simplicity, we are going to use “Total Comprehensive Income” for “Reported Earnings” and “Capital Expenditure & Acquisitions of Companies” as “Average Annual Maintenance Capital Expenditure”.]

It is dangerous to adopt such approach. You are almost certain to also group "Companies growing through acquisitions" under this category.

WB's idea of subtracting "Maintenance capex" as such expenditures do not increase the value of the assets in term of earnings capability but maintaining the status quo.

However, I think most would agree to take "Acquisition of companies" as acquisition of NEW assets which is suppose to improve future earnings. It is therefore not captured under WB's idea of "Maintenance capex".

Nevertheless, spending on acquisitions especially those that do not require shareholders' approval can raise governance issues. This will most definitely result in future impairment write-offs. As Serbadk is in a very volatile industry, the economic value of its assets can vary greatly. Therefore, management should be wary of excessive expansion through acquisitions during peak. This happened during the last boom and burst oil cycle.

This is only my personal view. I maybe wrong.

Thank you
22/12/2019 9:45 AM
shpg22 It look like, sounds like, smell like SAPSNG back in its glory day. Probably will end up like it soon.
22/12/2019 9:47 AM
i3lurker sometimes sharks want shares to go up

then you will get Go UP articles in i3
22/12/2019 9:50 AM
i3lurker sometimes sharks want shares to go down

then you will get Go DOWN articles in i3
22/12/2019 9:51 AM
Up_down Without shark participation, market would turn into lifelessness. It’s important to equip the skills surfing with the sharks.
22/12/2019 10:11 AM
Sslee Hahahaha
i3 stand for Independent. Intelligent. Informed. So be gratefull for all the 8ndependent writters sharing their article in i3 so that we can use our intelligent to make an informed decision.
22/12/2019 10:21 AM
supersaiyan3 Choivo, good attempt.

I think the key is some company just invest invest invest and never get back their money after so many years. Only a handful does.

What Choivo did is not categorised as fake news or rumours, by the way.

Again, investor education is very important.
22/12/2019 10:26 AM
Up_down I3 is , in fact, a good platform for us to learn improving our skills especially for beginners. Information whether it’s relevant or irrelevant, reliable or unreliable, sharks or Ikan... Some even come here to reveal insider information of the company.
22/12/2019 10:37 AM
Choivo Capital Well, if they can keep all the jobs coming in and growing, the capex may very well be an incredible investment.

Having said that, I recently spoke with a friend who audited saprng and their project finance reporting manager.

In essence, due to the sheer amount of capex they had, which was all backed by borrowings, despite the oil slowdown they have no choice but to take projects. And 70% of them are loss making, even without taking into account financing cost.

Its that hard and risky
22/12/2019 11:20 AM
JensenChin Choivo Capital’s statement outlays the poor quality of sources of information he claims to obtain.

His working capital information is not correct.

If everyone values a business using his so called ‘Owners capital’ model, then shares like Tesla is worth zero.

He is more of an attention seeker trying to promote and demote shares as he likes (i.e. self proclaimed analysts)

He fails to understand the business deeper, speak to people doing the real oil and gas work and Bankers.

Instead he claims to speak to Auditors of Sapnrg. Is the person he spoke to the audit partner of Sapnrg? Or low level auditor?

This type of action is irresponsible and malicious.

I will follow up on my report with:
- Legal counsel
- Securities Commission
22/12/2019 11:46 AM
Shinnzaii https://www.malaysiakini.com/news/504524

lets wait for truth to be surface
22/12/2019 1:15 PM
Choivo Capital Please. You think audit partner actually really know the accounts ?

At the end of the day, the work is done by the senior in charge and the manager who has the trust of the partner.

Well, I don't claim to fully understand this business, I'm just saying the numbers don't look that good

tell me your understanding of the business then. I dont think you understand it beyond every year accounting profit go up.
22/12/2019 2:35 PM
JensenChin Audit manager and audit senior does not know the entire business. The audit partner interacts with the top management and directors, not the audit manager and audit senior.

Don’t think as if you speak to one audit senior, you can assume you know the entire business.

For a start, fix your working capital calculation before even talking as if you are so intelligent and make a judgement that Serba is ‘rotten’ (malicious claim by Choivo Capital that must be penalised).

Your calculation of picking numbers as you like for owner capital calculation shows your immaturity in business.

You need to substantiate your claims in your previous post that you deleted. Otherwise, you must face the consequences before the law.
22/12/2019 3:46 PM
Kukuman Wonder who is this JensenChin.. Only have 11 posts in his lifetime. Out of the blue he is so agitated about things said of the company. Utterly childish to behave so personal for things said in this space. Pity
22/12/2019 4:05 PM
chshzhd i don know very much about Karim n serbadk but i would like to share this peace of article appeared in The Peak on June:
22/12/2019 4:49 PM
chshzhd n i wonder how fair it is to put sapnrg Shahril n serbadk Karim into the same category:)
22/12/2019 4:58 PM
chshzhd to put Choivo Capital article in simple, actually is the doubt about whether serbadk will have cash flow problem in the future since the huge capex n acquisition. n this was concerned n mentioned before in IB reports, that is why Karim said that Serbadk will nurture all their investments at present first b4 further expansion...
22/12/2019 5:21 PM
shpg22 Unless Karim is god why not? Both are human. Shahril was once a high flying CEO too.
22/12/2019 5:31 PM
ccy123 That is why I also don't like serba- serba.
22/12/2019 5:44 PM
shpg22 Should write another article about PESTECH. Another nonsense company with strong revenue and profit growth.
22/12/2019 6:23 PM
chshzhd I don believe in god even:)
22/12/2019 6:33 PM
chshzhd n i don trust karim 100% too n but i invest in serba dinamik:)
22/12/2019 6:39 PM
shpg22 https://www.youtube.com/watch?v=d0FY4xRT_yo
22/12/2019 7:19 PM
kalteh Is there any difference between WB definition of Owners’ earnings and Free cash flow? Both seems like the same to me based on your explanation
22/12/2019 9:47 PM
chshzhd n i don know how Karim easily make kpower scib fly so high suddenly :)
22/12/2019 10:50 PM
chshzhd n how he fool around with top 30 institution investors :)
22/12/2019 10:53 PM
chshzhd hebat Karim:)
22/12/2019 10:58 PM
apple4ver The formula you used fails to capture the essence of WB's "owners earnings". Quoted "..simply the total of the net cash flows (owner earnings) expected to occur over the life of the business".. Equating Capital Expenditure & Acquisitions of Companies as similar to Average Annual Maintenance Capital Expenditure is comparing an orange with an apple. A new acquisition or new capex will generate new flow of revenue and cash flow while maintenance capital is simply to preserve existing revenue and cash flow. Just look at the jump in revenue and profits for the last three years... Similarly, SAPNGR and SERBADK are dissimilar as one invested at the peak while the other at the crest of oil price. Of course, you could be right if oil price drops to $30 per bbls and STAYS there....
22/12/2019 11:35 PM
slts rubbish analysis
23/12/2019 6:59 AM
Icon8888 Got a bit of time year end

Digging out choivo articles to read one by one

Young punk got some useful concepts that I can learn
23/12/2019 7:53 AM
chshzhd i enjoyed reading Choivo articles too..
n i went through all 7 episodes of Serbadk Astro Awani last night.. feeling very good:)
23/12/2019 8:11 AM
chshzhd https://www.youtube.com/watch?v=MEvnOqRGBco
23/12/2019 8:15 AM
Investor 999 Serbadk-wa i see you at 0.600 soon
23/12/2019 8:56 AM
Icon8888 Choivo is not bad

But too academic, just like professor Ricky Yeo

Can be a good writer, not a good investor
23/12/2019 9:23 AM
chshzhd -wa i wait at around 0.35
23/12/2019 9:35 AM
RainT haha

23/12/2019 10:49 AM
RainT funny lo

how come he can said audit partner will not know anything about the biz

this show that this CHOIVO is totally not understand how audit firm works

he thinks audit partner just blindly sign off audit report only

laugh die me
23/12/2019 10:51 AM
chshzhd chicken intestines..quite good lah..academic way of analysis..not wrong
23/12/2019 11:09 AM
JensenChin Why Choivo Capital’s credibility is so low:
- First posted on Friday saying SDK is rotten. Plucked numbers from the sky and said maliciously claim that SDK is rotten. Remove the post and claim is excel formula error and change title from rotten to ‘weird’

- Write about owner earnings as if he is warren buffet, but ends up 58 in stock picking.

- Says that audit partner of SPNRG does not know anything about the business.

- Failed miserably in his RM5,000 paper on RCECAP.

- Operating a ‘capital’ without license
23/12/2019 11:39 AM
23/12/2019 12:22 PM
paperplane Shhhh, now, dont talk so much, action?!! Go goreng dsonic, to make back. Kaka
23/12/2019 12:24 PM
TakeProfits Solo looonh the write up arh..haha. Good on you Choivo
23/12/2019 5:05 PM
speakup bila Serbadk limit down?
23/12/2019 10:22 PM
Sslee Dear Choivo Capital,
May the Year of the Metal Rat bring you Good Luck, Good Health, Good Fortune, Plentiful of Laughter, Happiness, Success and at Peace with Oneself and Others. Happy Chinese New Year 2020

Thank you
P/S: https://klse.i3investor.com/blogs/Sslee_blog/2020-01-22-story-h1482896892-Let_s_celebrate_the_coming_CNY_2020_together_with_well_wishing_of_Unity.jsp
22/01/2020 9:06 PM

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