Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with an unchanged fair value of RM2.20/share, based on a 30% discount to our diluted sum-of-parts (SOP) valuation of RM3.15/share (Exhibit 4).
• Serba plans to undertake a private placement of up to 337mil new shares or 10% of its outstanding share capital (excludes treasury shares) by 1Q2021. Datuk Mohd Abdul Karim Abdullah and other major shareholders may also be interested in this exercise. Recall that the group had successfully placed out 306.5mil new shares or 10% of its share capital at RM1.49/share in April this year.
• Based on the current market price, we estimate that the proceeds of RM643mil could reduce Serba’s 3QFY20 net gearing of 89% to a more comfortable 57%.
• Assuming interest savings at 3% annually, the group’s FY21F EPS dilution by 7% to 18 sen still translates to an attractive PE of 11x, far below Dialog’s over 30x. Pending completion of the exercise, we maintain our FY21F–FY22F EPS for now.
• According to the announcement, 60% of the proceeds is for working capital needed for the group’s sizzling order book growth driven by Serba’s massive civil and ICT jobs in Abu Dhabi which have a combined project value of RM9.2bil.
• The rest of the proceeds is partly for debt repayment and partially fund the acquisition of the RM320mil Teluk Ramunia yard in September this year from Petronas.
• We are neutral on this development, which is not a surprise as our past updates have highlighted the possibility of an equity-raising exercise. Additionally, we also would not discount the likelihood that management may review Serba’s current dividend policy of 30% given the group’s expanding working capital requirements.
• Meanwhile, Serba’s outstanding order book at RM18.7bil has already exceeded the group’s earlier FY20F target of RM15bil (+50% YoY) which was set in the beginning of the year.
• Even so, we would not be surprised by additional fresh contracts soon as Serba aims to lease parts of the facilities to third parties while angling for fresh jobs in decommissioning, petrochemicals and renewable sectors, underpinned by the group’s 170-acre Teluk Ramunia yard expansion.

Source: AmInvest Research - 9 Dec 2020