Highlights

Serba Dinamik Holdings Berhad - Expanding Capabilities

Date: 15/06/2020

Source  :  PUBLIC BANK
Stock  :  SERBADK       Price Target  :  2.49      |      Price Call  :  BUY
        Last Price  :  1.62      |      Upside/Downside  :  +0.87 (53.70%)
 


Serba Dinamik (Serba) reported that it had entered into a sale and purchase agreement with Petronas Assets Sdn Bhd (PASB) for the proposed acquisition of the Teluk Ramunia Yard (TR Yard) located in Kota Tinggi, Johor for a total purchase consideration of RM320m. While positive over this development as it provides an avenue for Serba to enhance its EPCC capabilities in oil and gas services for the onshore, offshore and marine businesses as well as petrochemicals given its proximity to RAPID, we foresee a neutral impact in the short term given the current oil price environment which will limit oil majors’ capital expenditure (capex). We keep our FY20F-22F forecasts unchanged, banking on its existing orderbook of c. RM17bn. We reiterate our Outperform rating on Serba with an unchanged TP of RM2.49 based on an unchanged ~13x multiple over FY21 EPS of 19.5sen.

  • TR Yard is located in Teluk Ramunia, Kota Tinggi, Johor. It comprises 4 adjoining parcels of industrial land, with a total land area of approx. 169.96 acres, established with industrial buildings comprising warehouses, workshops, fabrication yard and other ancillary buildings. TR Yard has the ability to facilitate the construction of heavy oil and gas infrastructures of up to 50,000 tonnes. TR Yard currently is owned by PASB which was used for the RAPID development, having changed hands various times in the past 15 years.
  • Our view. While positive over this development, we foresee a neutral impact in the short term given the current oil price environment which will limit oil majors’ capital expenditure (capex). Recall that global oil majors including Petronas have announced capex cuts ranging from 20% - 30% this year with upstream investment expected to plunge 32% to USD335bn. Works associated with TR Yard such as construction of plants, offshore platforms, ship building, pipe coating and others are mostly capex-related projects. Nevertheless, we believe the acquisition appears synergistic in the mid to longer term as it provides an avenue for Serba to enhance its EPCC capabilities in oil and gas services for the onshore, offshore and marine businesses as well as petrochemicals given its proximity to RAPID. Considering the size (as compared to Serba’s 30-acre Bintulu Integrated Energy Hub and 63-acre Pengerang Eco-Industrial Park, both of which cater to the MRO and IRM Centre) and facilities in the yard, Serba is able to participate in projects of various sizes, such as decommissioning works, offshore transport and installation, integrated hook-up and commissioning services, top side maintenance etc. This will support its plan in becoming a full-fledged oil and gas services player. With oil and gas activities expected to pick up from 2021 onwards, we believe opportunities in the petrochemical space will also be encouraging. This includes the USD3.38bn aromatics plant in Pengerang Johor. Construction of the project which was initially slated to begin in 2H this year has now been delayed due to the Covid19 pandemic however.
  • Financial impact. The purchase consideration of RM320m will be financed via internally generated funds and bank borrowings. Assuming the acquisition is 80% funded by borrowings, the Group’s gross and net gearing ratio will increase to 1.2x and 0.7x from 1.1x and 0.6x respectively. In terms of pricing, we deem the purchase price as fair with its slight 4.5% discount to the current market value derived by independent valuer. In comparison to most recent transaction, the price is 8.1% higher than when Petronas bought it from Sime Darby in 2011. Oil prices were around USD100/bbl with Petronas’ capex spend of RM41.2bn.
  • Venturing into North Sea. Separately, the Group also reported that it had entered into a share sales agreement to acquire 1,360,001 shares or approx. 80% stake in Wellahead Engineering Limited, an Aberdeen-based precision engineering service provider for the North Sea oil and gas industry, for a total purchase consideration of GBP1.5m (approx. RM8.1m). While this acquisition undoubtedly is positive for Serba as it further expands Serba geographical footprints in North Sea market, the contribution to earnings are negligible. Given Wellahead's orderbook currently stands at RM26.7m with a contract lifespan for at least 2 years, earnings accretion to Serba will just c. 0.2%. Hence, we maintain our earnings projections.

Source: PublicInvest Research - 15 Jun 2020

Share this
Labels: SERBADK

Related Stocks

Chart Stock Name Last Change Volume 
SERBADK 1.62 -0.03 (1.82%) 19,909,900 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View candlestick stock charts with Technical indicators
MQ Affiliate
Be rewarded by being an MQ Affiliate
 
 

533  508  563  490 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 LAMBO 0.030.00 
 PRG 0.275-0.01 
 KGROUP 0.050.00 
 PNEPCB 0.38-0.04 
 AT 0.18-0.005 
 PHB 0.0250.00 
 QES 0.355+0.05 
 DNEX 0.22+0.015 
 IRIS 0.4050.00 
 XOX 0.095-0.01 

FEATURED POSTS

1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS