PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 17 Jan 2020, 9:48 AM


Serba Dinamik Holdings Berhad - Rewarding Shareholders

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Serba Dinamik (Serba) announced that it proposes to undertake several exercises which will essentially enlarge its share base by >100%. We are neutral on this development though it could widen Serba’s ownership base due to its relatively more affordable pricing and higher stock liquidity. The issuance of these bonus and warrants are also part of management’s initiatives in rewarding shareholders. No change to our estimates though these exercises will dilute our FY20/21 EPS to 18.3/20.8sen respectively before the warrant conversion. Our TP will be be adjusted lower to RM2.56 post bonus and share split and subsequently RM1.99 on a fully-diluted basis. We reiterate our Outperform rating on Serba with an unchanged TP of RM5.38 at this juncture pending approval by the shareholders, as earnings outlook is expected to remain steady, underpinned by its long-term recurring earnings from the O&M segment.

  • Expanding the share base. The exercises which involve i) a share split of every two existing ordinary shares in Serba held into three shares, ii) a bonus issue of 881,100,000 new shares on the basis of two bonus shares for every five shares after the split, and iii) an issuance of 881,100,000 free warrants in Serba on the basis of two warrants for every five shares held after the split. This will expand Serba’s share base from 1,468.5m to 3,083.9m post share split and bonus issue, and will expand further to 3,965.0m post exercise of warrants. While these exercises will enlarge its share base by >100%, the value of the shares remains the same (excluding conversion of warrants as it may not be immediately dilutive). The proposals are expected to be completed by 4Q this year.
  • Neutral impact near-term, though it could widen Serba’s ownership base due to its relatively more affordable pricing and higher stock liquidity. The conversion of warrants, though not likely to be immediate dilutive, will improve the Group’s gross gearing ratio to 0.4x from 0.8x currently.

Source: PublicInvest Research - 3 Sept 2019

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