Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with an unchanged fair value of RM2.20/share, based on a slightly lowered 22% discount to our diluted sum-of-parts (SOP) valuation of RM2.83/share (Exhibit 1).
   
• Serba has completed the book-building exercise for its 10% private placement with the issuance of 336.8mil new shares at RM1.51/share – 8% discount to the 5-day volume weighted average market price.
   
• The exercise attracted local and foreign investors with an impressive over-subscription rate of 1.9x. Also, Serba’s founder Datuk Mohd Abdul Karim Abdullah has subscribed to the placement and raised his stake by 1.7% to 23.2%.
   
• Our forecasts have been revised to account for the RM509mil gross proceeds, which reduce the group’s FY21F net gearing from 0.7x currently to 0.4x, while diluting FY21F–FY22F EPS by 6%.
   
• Even so, with the recent retracement in Serba’s share price, the stock is currently trading at a highly compelling FY21F PE of only 9x for an operation and maintenance service provider with a recurring income profile, while offering an attractive dividend yield of 5%. As a comparison, its closest peer Dialog Group currently trades at a P/E of over 30x.
   
• Additionally, the group is poised for stronger order book growth with the recent acquisition of the RM320mil Teluk Ramunia yard, which enhances and substantively expands the group’s existing strategic presence in Pengerang’s Refinery and Petrochemical Integrated Development.
   
• Including the RM1bil contracts secured over the past month, we believe Serba’s outstanding order book increased slightly by 1% QoQ at RM18.7bil.
   
• However, as previously highlighted, this locked-in future revenue has already exceeded the group’s earlier FY20F target of RM15bil (+50% YoY), which was set in the beginning of 2020.
   
• While management has yet to provide fresh guidance for the group’s year-end 2021 order book, we expect additional contracts later this year as Serba aims to lease parts of the 170-acre Teluk Ramunia yard to third parties while angling for fresh jobs in decommissioning, petrochemicals and renewable sectors

Source: AmInvest Research - 25 Jan 2021