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Wednesday, July 26, 2017

Serba Dinamik is Affin’s top mid cap O&G pick

Wednesday, 26 July 2017 | MYT 10:15 AM

KUALA LUMPUR: Affin Hwang Capital Research remains positive on Serba Dinamik Holdings Bhd’s long-term growth outlook.

Serba is also the research house’s top pick in the mid cap oil and gas (O&G) space. It has reiterated its “buy” call on Serba with an unchanged target price at RM2.40.

Affin said it recently met up with the management of Serba and the key highlights of the discussion centered around the ongoing Qatar crisis, and the company’s strategic plans and prospects.

Affin said the Qatar crisis which surfaced in early June has taken a toll on Serba’s share price, which has fallen by 13% since then.

However, it gathered that business operations remained undisrupted with a negligible slowdown in demand for maintenance activities.

“Contrary to market belief, Serba has been undertaking more ad-hoc work as some companies had pulled out their work force from Qatar, which in turn benefits Serba with additional available work. Currently, its Qatar exposure to the total orderbook stands at around 15%,” Affin said.

It said that Seba’s management were confident that its venture into Africa would start to bear fruit in 4QCY17 with its first contract win.

Affin said Serba’s pre-IPO plans to acquire parts manufacturing companies remained on the table.

“We understand that two companies based in Switzerland and Italy have been shortlisted. These companies are believed to be vendors to major OEM players like General Electric, Elliot, etc.

“The total purchase consideration is estimated at around RM10-RM15mil for a non controlling stake,” the research house said.

In tandem with the acquisition plans, Serba will need to upgrade its existing facilities in Pengerang and Bintulu to expand its current customer base.

Affin also noted investors’ concern over the potential increase in gearing levels as the company expands more into recurring income-based assets.

As at end-1Q17, Serba’s cash position stood at RM516.9mil with RM575.1mil of total borrowings which put the company in a net debt position of RM58.2mil.

Affin said Serba’s strategy to undertake future asset projects was through associate stakes, which were likely to be concession-based projects.

Hence, any form of debt financing will be done at the operating company level. In turn, Serba’s equity stake will be funded either through cash or debt.

“As we understand, Serba intends to finance any effective stake through a combination of debt-and-equity with a higher weightage towards debt,” it said.

Serba announced that it has secured six contracts (2 international, 4 domestic) for a total value of RM552.9mil. Inclusive of this batch of contracts, year-to-date O&M contract wins totalled RM992mil, bringing the current outstanding O&M order book size to RM4bil.


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