Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with an unchanged sum-of-parts-based (SOP) fair value of RM6.50/share, which implies an FY19F PE of 20x — 33% below Dialog’s 30x, the company’s closest peer in Malaysia.

• Serba held an impromptu teleconference yesterday to refute rumours that the group is planning to acquire KNM Group, its equity, assets or projects.

• Serba’s founder and substantial shareholder Datuk Mohd Abdul Karim Abdullah reaffirmed that while he is a shareholder of Sarawak Consolidated Industries (SCI) and Kumpulan Powernet (Powernet), those shares are held under his own personal capacity and he does not have any operational role in them.

• Currently, SCI manufactures precast concrete products and is involved in property development in Sarawak. Powernet, where Karim and his business partner acquired a 30% equity stake, is involved in fabric manufacturing in Bentong, Pahang and has been registering losses over the past 9 years.

• As SCI and Powernet are not involved in the oil and gas business, we are glad that Serba reaffirmed its commitment to focus on its core expertise and expand its recurring income profile.

• Serba remains on track to reach management’s outstanding order book target of RM10bil by end-FY19F, which implies an impressive order book growth of 33% YoY.

• This means that the FY19F revenue growth of 15%–20% should be achievable. Management expects the continuation of strong revenue growth this year driven by growing demand in the Middle East and Southeast Asia, spearheaded by the UAE and Qatar.

• We remain positive on Serba’s O&M business model, which is still actively expanding its long-term recurring earnings profile by strategically leveraging its EPCC and ownership platform, similar to Dialog Group.

• Serba is currently trading at a grossly undervalued FY19F PE of 13x vs. over 30x for Dialog Group – Serba’s closest peer in the oil and gas sector.

Source: AmInvest Research - 9 Jul 2019