Investment Highlights

• We maintain BUY on Serba Dinamik Holdings (Serba) with unchanged forecasts and fair value of RM2.40/share based on a 20% discount to our diluted sum-of-parts (SOP) valuation of RM2.99/share (Exhibit 2), which reflects a neutral ESG rating of 3 stars. This implies an FY21F PE of 14x vs. Dialog’s 28x.

• Serba has sponsored and listed Data Knights Acquisition Corp (Data Knights), a special purpose acquisition company (SPAC), on the Nasdaq Capital Market last Friday via the issuance of 10mil shares at US$10/unit. Each unit consists of one share of the UK-based SPAC's Class A common stock and one redeemable warrant, which entitles the holder to consequently purchase one share of Class A common stock at the price of US$11.50/share.

• The SPAC is led by chief executive officer (CEO) and chairman Barry Anderson, who is also the CEO of D'Lloyd Technologies, a UK-based valve supplier in which Serba’s managing director, Datuk Mohd Abdul Karim, was a former director. Data Knights’ chief financial officer (CFO) Firdauz Mokhtar serves as a senior vice president of special project at Serba and was a former CFO of Barakah Offshore Petroleum.

• Including Serba’s US$5.9mil (RM24.1mil), the total equity raised by the UK-based SPAC amounts to US$106mil, in which the group has an effective equity stake of 20% as the sponsor. The SPAC’s closing price of US$10/share and market capitalisation of US$100mil translates to a potential fair value gain of US$14mil (RM58mil), 8% of Serba’s FY21F earnings.

• Data Knights plans to leverage its management team's experience, targeting data centres and internet technology sectors globally, and focusing on disruptive technologies and business platforms. Recall that Serba is building a US$350mil (RM1.4bil) data centre in Mussaffah, Abu Dhabi for Future Digital Data Systems LLC (FDDS). This project, secured in August last year, is expected to be completed by September 2024.

• We are positive on this development given the immediate fair value gains while the group could leverage the SPAC under its management to secure fresh technology-related contracts globally and secure external equity funds from US investors. The group could also have other projects in the pipeline, including its space division involving a satellite to provide communications connectivity to unreached areas in the country.

• Meanwhile, the improved net gearing from the group’s RM509mil private placement in January this year, together with good earnings visibility from recurring O&M operations, translate to an unjustified FY21F PE of only 9x vs. its closest peer Dialog Group’s 26x.

Source: AmInvest Research - 10 May 2021