Positive views on Serba Dinamik’s acquisition in GSH, new EPCC

KUALA LUMPUR: Analysts are positive on the latest developments from Serba Dinamik Holdings Bhd’s (Serba Dinamik) which includes the 15 per cent acquisition in Green & Smart Holdings Plc (GSH) and engineering, procurement, construction and commissioning (EPCC) contract win in Laos.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) was positive over the 15 per cent acquisition in GSH, given that it would allow Serba Dinamik to expand the group’s EPCC capabilities in building biogas plants for the palm oil effluent treatment space and tap into massive palm oil markets like Indonesia.

“In addition, the acquisition would put Serba Dinamik as a frontrunner for GSH’s remaining eight biogas power plant projects (with total contract value of circa RM160 million) around Malaysia.

“Note, GSH has awarded Serba Dinamik the EPCC works for their third biogas plant located at Teluk Intan (Perak) back in February 2018,” Kenanga Research said.

Based on GSH’s financial year 2016 amended (FY16A) earnings of RM10 million, the research arm found the acquisition price tag fair as it implied 11-fold price earnings (PE), which is at a discount to Serba Dinamik’s current multiple of 14-fold.

It further noted that post-acquisition, Serba Dinamik’s net gearing will rise marginally to 0.07-fold, from 0.06-fold.

As for the EPCC contract win worth RM268.8 million (US$66.2 million) from Nam Taep 1,2,3 Hydropower Company Ltd, Kenanga Research was “positive on the win as this marks Serba Dinamik’s first contract in Laos, which showcased their ability to secure contracts in new markets.”

Nonetheless, Serba Dinamik’s year to date (YTD) wins of RM1.6 billion -- with its outstanding order book at RM6.9 billion -- was still in line with the research arm’s FY18 replenishment assumption of RM3 billion.

“Margins-wise, we reckon that the job should match its historical gross profit (GP) margins of circa 17 per cent for EPCC works.”

Overall, Kenanga Research continued to like Serba Dinamik for the group’s decent earnings growth of 25-13 per cent in FY18-19 backed by both operations and maintenance (O&M) and EPCC segments via geographical expansion, stable margins of 11.7-11.2 per cent and superior return on equity (ROE) of 19-18 per cent.

“We expect positive catalysts from delivery of quarterly earnings and continuous contract flows from new and existing customers.”