Serba Dinamik (Serba) announced that it will be undertaking a private placement of up to 10% of its paid-up share capital to raise c.RM433.9m. We are positive on this exercise as this will provide the financial muscle the group needs for its next phase of growth. Serba remains our O&G sector top pick with an unchanged TP of RM4.00, based on 14x FY18E EPS.
Serba has proposed to undertake a private placement exercise of up to 10% of its paid-up share capital, or 133.5m shares. Assuming a full subscription of the placement shares at an illustrative price of RM3.25/share, the group is expecting to raise estimated gross proceeds of RM433.9m. The proposed exercise is expected to be completed by 1QCY18.
The bulk of the placement proceeds (c.73%) will be allocated to fund part of the proposed Pengerang project (estimated cost of RM850m), while 26% of it will be allocated for working capital requirements for the EPCC of its chlorine skid-mounted chlor-alkali plant in Tanzania, Africa (estimated EPCC cost of RM295m). The remainder will be used to pay off the expenses relating to the proposal.
The potential dilution impact to our FY17-19E EPS, assuming the shares are fully taken up, will be 9.1%. Nevertheless, we view the deal positively as the nature of this external fund-raising is not to pare down any debts. Contrary, it will be used to fund its expansion plans:- i) Pengerang eco Industrial Park (PeIP), which includes the development of a maintenance, repair and overhaul (MRO) and inspection, repair and maintenance (IRM) global centre of excellence as well as plant turnaround village, ii) Pengerang International Commercial Centre (PICC), and iii) working capital for its Tanzania project (refer to Figure 2).
We make no changes to our existing earnings forecast. We maintain our BUY call on the stock at an unchanged target price of RM4.00 based on 14x FY18E EPS. Downside risks: unforeseen operational hiccup or client maintenance schedule delay.
Source: Affin Hwang Research - 10 Jan 2018
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