Investment Highlights

• Serba Dinamik Holdings Bhd started off as a provider of maintenance, repair and overhaul (MRO) services in June 1993. Since then, the group has evolved into a sizeable engineering solution service provider for the oil & gas industry. As of 2018, the group is ranked fourth largest oil & gas service and equipment company in Malaysia in terms of revenue for the provision of maintenance services to the oil & gas industry.

• The group is mainly involve in the operations and maintenance (O&M) services which consists of MRO of rotating equipment and inspection, repair and maintenance (IRM) of static equipment and structures as well as engineering, procurement, construction and commissioning (EPCC) in the oil & gas industry. Todate, the group operates five service centers throughout Malaysia and two overseas, housing over 800 employees.

• As of 31st December 2018, Serba Dinamik utilised 74.7% or RM303.9 mln of its IPO proceeds with the remainder (RM103.2 mln) to fund further acquisitions of asset ownership businesses. To-date, Serba Dinamik has made a total of nine strategic acquisitions in industrial automation, power generation from biogas, design and provision of IT solutions and business process management (BPM).

• Serba Dinamik has delivered a commendable historical five-year (2013-2018) net profit CAGR of 57.0% and a historical five-year revenue CAGR of 44.4% to RM387.9 mln and RM3.28 bln respectively in 2018. At current share price of RM4.05, Serba Dinamik trades at prospective 2019 and 2020 PERs of 13.5x and 13.1x respectively, a discount vs. medium-large oil & gas capitalised companies listed on Bursa Malaysia of 16.5x, thereby implying a decent share price upside potential.

Recommendation

We like Serba Dinamik for its position as one of the market leaders in the oil & gas service provider, ranked fourth in terms of revenue in Malaysia 2018. Over the years, the group has evolved into a sizeable engineering solution service provider, specialising in O&M and EPCC services for the oil & gas industry.

We reckon that the group’s asset ownership business model strategy via the acquisition of minority stakes in several companies will add synergistic value to the group’s core operations. The aforementioned move will not only generate a stream of recurring income over the longer term, but also cement Serba Dinamik’s footprint in the international level. To-date, the group has set its footprint in over 20 countries across the globe, with its key market in the Middle East.

The group’s operations are overseen by a management team equipped with vast knowledge, skills and numerous years of experience in the oil & gas industry. In the meantime, Serba Dinamik has established long-term business relationships with its major customers such as Petronas Carigali Sdn Bhd, Sarawak Shell Bhd and PetroServ Ltd, averaging over 10 years which boost its prospect of securing recurring projects with similar job scopes over the foreseeable future. As of 1Q2019, the group’s unbilled orderbook of RM8.3 bln will anchor its earnings growth over the next three years.

At current price of RM4.05, we reckon that its share price is attractive, trading at prospective 2019 and 2020 PERs of 13.5x and 13.1x which is below its peers’ average of 25.9x for 2019. We are also upbeat on Serba Dinamik’s expansion plans as the group aims to expand into new target markets (Central Asia), supported by its strong track record established over the past years.

Investment Risk

Risks to our recommendation include failure to secure the targeted orderbook replenishment of RM3.00 bln for 2019 and 2020 respectively. A slower-than-expected orderbook replenishment rate would dent its earnings growth and visibility prospects.

Based on its three-year historical revenue (2016-2018), Serba Dinamik derived an average of 56.0% of its total revenue from Middle Eastern countries. The high concentration of Middle East jobs raises geopolitical risk that could potentially lead to delays or termination of execution of its contracts should war or terrorism activities occur in the region or neighboring countries.

The bulk of Serba Dinamik’s revenue, purchases and borrowings are denominated in U.S. Dollar. A firmer Ringgit against the U.S. Dollar could affect the group’s bottom line as a recovery in the local currency against the Greenback will have a negative impact on the group’s earnings and vice versa.

Company Background

Serba Dinamik’s history traces back to June 1993 with the incorporation of Serba Dinamik Sdn Bhd as a provider of MRO services for rotating equipment. The group purchased its first piece of land in 1994 at the Kidurong Light Industrial Estate in Bintulu Sarawak, housing their first mechanical and fabrication workshop.

In 1998, Serba Dinamik expanded into the IRM of static equipment. Subsequently in 2001, the group secured its first overseas contract with a global O&M service provider for the upgrading of turbine gas compressor and installation of a booster compressor for a LNG plant in Ras Laffan, Qatar. A year later, the group incorporated Serba Dinamik International in Labuan to focus on overseas business activities.

Serba Dinamik diversified into EPCC work in February 2007 after securing a contract for lubrication oil varnish remover and filtering solution equipment for gas turbines from Malaysia LNG Sdn Bhd. Serba Dinamik IT Solutions Sdn Bhd was incorporated in 2010 to develop and provide ICT software and solutions for various industrial applications - mainly to support the O&M operations. The group received the MSC Malaysia status for research, development and commecialisation of its in-house developed proprietary software, namely AlignSoft and myPLANT.

As part of the group’s asset owner business model strategy, the group has a total of seven on-going projects (at various stages of commencement/construction) that will provide long-term recurring income. Serba Dinamik was listed on the Main Market of Bursa Malaysia on 8th February 2018 and based on Serba Dinamik’s total revenue of RM3.28 bln in 2018, the group is ranked as the fourth largest public listed oil & gas services and equipment company in Malaysia.

Source: Mplus Research - 11 Jun 2019