Summary

• Serba Dinamik Holdings Bhd has completed the disposal of its entire stake in CSE Global Ltd for S$57.7m (RM177.3m) cash. Back in April 2020, Serba Dinamik paid RM170.6m for the 25.2% stake in the Singapore-listed technology company.

• The disposal of the 128.2m shares in CSE Global was completed in the open market. The initial objective of Serba Dinamik acquiring CSE Global is to amongst others, leverage on CSE global presence and its client base in the oil and gas industry as well as to strengthen the group’s IT segment. Proceeds from the disposal will be deployed into other ventures.

• We are neutral on the disposal as part of Serba Dinamik’s strategy to unlock the investment value which saw a net disposal gain on RM6.7m, which we think is fair after a little over 2 years of investment horizon. Nevertheless, we think that the disposal is timely after the initial objectives have been met where the group has achieved the relevant financial targets and international presence. Meanwhile, disposal will be able to strengthen the group’s balance sheet and ease the cash flow constraints in order to undertake more jobs over the foreseeable future. At the same time, the recent wins in ICT segment will cushion the miniscule contribution from CSE Global.

• Moving forward, we continue to see the oil & gas business segment as the key driver of the group’s growth in coming years with the aforementioned segment contributing >80% of total revenue in both FY20 and FY21 respectively. We think that Serba Dinamik is largely on track to meet their outstanding orderbook target at RM15.0bn by end-2020 following a series of jobs wins year-to-date.

Valuation & Recommendation

• We made no changes to our earnings forecast and we maintain our BUY recommendation on Serba Dinamik with an unchanged target price RM2.09. Our target price is derived by ascribing an unchanged target PER of 13.0x to its FY21 EPS of 16.1 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 outstanding orderbook of RM15.0bn by end-FY20. A firmer ringgit against the USD 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 - 8 Jul 2020