Summary

• Serba Dinamik Holdings Bhd (Serba Dinamik) through its wholly-owned subsidiary, Serba Dinamik Group Berhad (SDGB) has sponsored Data Knights Acquisition Corp., a special purpose acquisition company (SPAC) of its initial public offering of 10.0m shares. The shares have commenced trading on the Nasdaq Capital Market on 7th May 2021, under the symbol DKDCU.

• The total investment made by SDGB in the SPAC is approximately USD5.9m (c. RM24.1m), based on the exchange rate of USD1.00: RM4.12. Each unit consists of one share of the DKDCU'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 $11.50 per share.

• DKDCU is a blank check company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganisation, or similar business combination with one or more businesses. DKDCU aims to focus on data centers and internet technology sectors where its management team has extensive experience.

• Separately, Serba Dinamik is desirous to change their financial year end from 31st December 2020 to 30th June 2021. The move comes due to the extension of the Movement Control Order (MCO) in Malaysia and lockdowns in countries in which the group have hampered the ability to finalise the financial statements.

• We are neutral on the aforementioned investment, which is expected to see minimal impact to the group’s profitability over the foreseeable future. Still, we believe that Serba Dinamik will be able to leverage on DKDCU’s management team expertise in the technology sector which is in line with Serba Dinamik’s move in reducing the reliance on oil & gas industry.

• With Brent oil prices now recovering back towards slightly below USD70/bbl, we believe that major oil & gas players may accelerate their CAPEX plans. Meanwhile, crude oil rigs in US have now remained above 300 since mid-February 2021 (from slightly below 200 in October 2020) as economic recovery gain traction.

Valuation & Recommendation

• We made no changes to our earnings estimates and valuation metrics, pending the upcoming quarterly results release at the end of the month. We maintain our BUY recommendation on Serba Dinamik with an unchanged target price RM2.37. Our target price is derived by ascribing an unchanged target PER of 13.0x to its FY21f EPS of 18.1 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 ongoing effort diversification into businesses that generates recurring income.

• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM18.0bn by end-FY21f. Meanwhile, 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 with majority of existing orderbook derived from overseas.

Source: Mplus Research - 10 May 2021