• Serba is proposing another fund-raising exercise via a 10% private placement 7 months after its previous round back in May 2020
• This was sooner than expected, but not entirely a surprise given elevated net gearing level of 0.89x as at 3QFY20. It’s an inevitable move to allow the group to have more financial maneuverability to execute projects in hand
• Maintain BUY with a 12-month target price of RM2.15

Private placement raising up to RM515m

Serba Dinamik (Serba) proposed to undertake a private placement exercise of up to 336.8m shares or 10% of issued shares. Assuming a full subscription of the placement shares at an illustrative price of RM1.53/share (10% discount to 5-day VWAP), the group is looking to raise gross proceeds of RM515m. The proposed exercise is expected to be completed by 1Q21.

Breakdown of proceeds use

Out of the proposed RM515m amount raised, RM100m will be partly utilized for bank borrowing repayments, RM100m for the Teluk Ramunia yard capex, and RM303m for working capital purposes (split into RM167m for Abu Dhabi innovation hub project, RM106m for Abu Dhabi data center project, and remaining general working capital). Refer to Fig 1 for breakdown.

Earlier than expected but necessary

This deal does not come as a surprise given that its net gearing level rose to 0.89x as at 3QFY20. However, this was sooner than what we expected given the last round of 10% placement was only completed back in May 2020. This proposed placement is necessary to help fund the working capital needs for the combined RM9.2bn Abu Dhabi projects (which make up 50% of current order book). Taking into account the interest cost saving, the potential dilution impact to our FY22-23E EPS would be around 8-9%. This will also reduce net gearing from the current 0.89x to 0.65x, by our estimate.

Maintain Buy

We make no changes to our existing earnings forecasts. Note that we have yet to impute any contribution from the RM7.7bn Abu Dhabi project. We maintain our BUY call on the stock at an unchanged target price of RM2.15 based on 12x FY21E EPS. Key risks include unforeseen delays in clients’ maintenance schedules and existing EPCC progress, and cost overruns.

Source: Affin Hwang Research - 9 Dec 2020