Summary

• Serba Dinamik Holdings Bhd has inked an RM320.0m deal with Petroliam Nasional Bhd (Petronas) wholly owned subsidiary, Petronas Asset Sdn Bhd to acquire the Teluk Ramunia fabrication yard (TR Yard) in Johor. The asset comprises four adjoining parcels of industrial land totalling 68.8-ha.

• Erected on the land are warehouses, workshops, fabrication yard and other ancillary buildings. The yard has the capacity to perform steel fabrication of offshore platforms and other structures of up to 50,000 tonnes.

• We deem the acquisition’s purchase price tag at RM320.0m to be fair in relative to the market value of the asset at RM335.0m, translating to a price-to-book value of 1.0x. The acquisition will be funded by a combination of internally generated fund and bank borrowings and is expected to be completed by 3QFY20.

• We believe as the acquisition of TR Yard will improve Serba Dinamik’s position as a major oil & gas player which enable the group to participate in various sizeable prospects such as decommissioning work, offshore transport and installation (T&I), integrated hook-up and commissioning (i-HUC) services and top side maintenance.

• Aside from that, the move will also generate a synergistic effect by strengthening the current offshore EPCC capabilities over the long run, well positioned itself to close proximity to RAPID that could offer a wide range of engineering services.

Valuation & Recommendation

• We raise our earnings forecast by 0.3% and 0.7% to RM527.8m and RM543.8m for FY20 and FY21 respectively to account for the contribution from the steel fabrication business from TR Yard with no changes made to our target orderbook of RM14.0bn end-FY20 for the time being. Consequently, we maintain our BUY recommendation on Serba Dinamik with a higher target price RM2.09 (from RM2.02) as we take this opportunity to roll over our valuation metrics to FY21.
• Our target price is derived by ascribing an unchanged target PER of 13.0x to its revised FY21 EPS of 2.6 sen. We continue to like Serba Dinamik as one of the key players in the oil & gas industry, backed by its sturdy orderbook comprising of dozens of jobs from local and overseas that will provide long-term earnings visibility, coupled with the group’s on-going effort diversification into businesses that generates long-term recurring income.
• Risks to our recommendation include failure to hit the targeted orderbook of RM14.0bn by end-FY20. A firmer ringgit against the U.S. Dollar could affect the group’s bottom line as it will have a negative impact on the group’s earnings and vice versa.

Source: Mplus Research - 15 Jun 2020