An­a­lysts ad­just earn­ings fore­cast for Serba Di­namik

The Star Malaysia - StarBiz - - News -

PETALING JAYA: Sev­eral an­a­lysts have ad­justed their earn­ings fore­cast for Serba Di­namik Hold­ings Bhd, fol­low­ing the ac­qui­si­tion of a stake in Sin­ga­pore-listed tech­nol­ogy firm CSE Global Ltd last week.

They also said that al­though the val­u­a­tion of the ac­qui­si­tion is on the high side, it would ex­pand the com­pany’s foot­print.

RHB Re­search has raised its earn­ings fore­cast for Serba in 2018 and 2019 by 2.3% and 2%, re­spec­tively, af­ter fac­tor­ing in earn­ings con­tri­bu­tion from its stake in CSE Global.

“The ac­qui­si­tion would pro­vide the group with ac­cess to CSE Global’s Amer­i­can and Euro­pean clients for fur­ther ex­pan­sion of its core op­er­a­tions and main­te­nance busi­ness,” RHB Re­search said yes­ter­day.

CSE Global has a strong pres­ence in North Amer­ica, with its busi­nesses in the United States con­tribut­ing 57% of the group’s to­tal rev­enue.

RHB Re­search pointed out that the earn­ings con­tri­bu­tion from CSE Global is ex­pected to be RM10mil an­nu­ally, or 2.4% of its fore­cast for Serba’s 2018 profit af­ter tax.

Ke­nanga Re­search has also up­graded its fore­cast for Serba’s earn­ings in 2018 and 2019 by 1.4% af­ter im­put­ing CSE Global’s earn­ings start­ing from mid-April this year with a 15% earn­ings growth, and higher fi­nance cost as a re­sult of in­creased bor­row­ings post-ac­qui­si­tion.

The ac­qui­si­tion of a 25% stake in CSE Global for RM170.6mil would be fully funded via bor­row­ings.

Ke­nanga Re­search ex­pects Serba’s net gear­ing in 2018 to in­crease to 0.23 times from 0.15 times.

The re­search house said the ac­qui­si­tion “may ap­pear to be high” at a price-earn­ings ra­tio of 17.7 times and a price-to-book ra­tio of 1.3 times.

“The man­age­ment is con­fi­dent that the out­look is im­prov­ing with po­ten­tial new or­ders from green­field com­pris­ing new in­stal­la­tions and brown­field com­pris­ing the main­te­nance, up­grade and en­hance­ment of ex­ist­ing in­stal­la­tion projects,” it said in a note to clients yes­ter­day.

No­tably, the deal val­ues the Sin­ga­pore firm at about S$0.45 a share. The stock was last traded at S$0.42, giv­ing it a mar­ket value of about S$217mil.

Mean­while, UOB Kay Hian Malaysia Re­search reck­oned that CSE Global would com­pli­ment Serba’s cur­rent busi­ness, es­pe­cially since al­most 70% of the for­mer’s rev­enue is from the up­stream oil and gas in­dus­try.

“This is dif­fer­ent from Serba’s client mix, which has a higher pro­por­tion of down­stream and util­ity cus­tomers,” it said, adding that there would be no over­lap in clien­tele.

It ex­pects Serba to have board rep­re­sen­ta­tion in CSE Global.

How­ever, UOB has trimmed its earn­ings fore­cast for Serba for the next three years, as it has not fac­tored in the earn­ings ac­cre­tion from CSE Global and for­eign-ex­change losses.

Shares in Serba closed three sen lower to RM3.48 yes­ter­day.

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