AmInvestment Bank maintains 'buy' call on Serba Dinamik

KUALA LUMPUR (Feb 11): AmInvestment Bhd has maintained its ‘buy’ call on Serba Dinamik Holdings Bhd (Serba) with an unchanged forecast and dilutes sum-of-parts-based fair value of RM3 per share.

In a research note today, it said, this followed Serba’s confirmation that it is in preliminary negotiations with the Sarawak state government to acquire Sarawak-based Brooke Dockyard and Engineering Works Corp.

“While such an acquisition could strategically transform Serba’s offshore fabrication and operation and maintenance capabilities, we would have been negative on such a development given the potentially high price tag, which channel checks had indicated was at RM150 million.

“Additionally, as Brooke Dockyard was reportedly in financial distress with losses incurred on a contract, we are doubtful that the company is able to secure any major contracts over the near to medium term from Petronas, which requires good and timely execution from its contractors,” the research house said.

AmInvestment’s analyst Alex Goh said Serba’s high net gearing of 0.7 times in the third quarter of 2019 is likely to rise further to 0.8 times by the fourth quarter of 2019 due to working capital requirements.

Hence, the group is likely to raise additional equity to finance such an acquisition, he said.

“Given that the yard is unlikely to generate any substantial profitability over the next one to two years, on the lack of outstanding order book, an acquisition by Serba would have been value-destructive.

“As such, a possibility has been averted, we remain optimistic of Serba’s earnings growth prospects, with an outstanding order book that is already reaching RM10 billion currently and the management is still aiming for topline and earnings growth of 10-15% for the financial year of 2020, supported by an ambitious order book target of RM15 billion,” he added.