‘Serba Dinamik’s earnings growth prospects still sanguine’
KUCHING: Analysts remain sanguine on Serba Dinamik Holdings Bhd’s (Serba Dinamik) earnings growth prospects after it officially refuted reports of it being in preliminary staged of negotiations with the Sarawak state government to acquire Sarawak-based Brooke Dockyard and Engineering Works Corp (Brooke Dockyard).
AmInvestment Bank Bhd (AmInvestment Bank) recalled that Brooke Dockyard, which has a major fabricator licence from Petroliam Nasional Bhd (Petronas) with an annual capacity of 25,000 tonnes on 20-acres of yard space in Kuching, Sarawak, is able to undertake heavy engineering works for oil and gas offshore modules, substructures and ship building.
“While such an acquisition could strategically transform Serba Dinamik’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,” the research firm said yesterday.
“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 firm also highlighted that Serba Dinamik’s high net gearing of 0.7 fold in the third quarter of financial year 2019 (3QFY19) is likely to rise further to 0.8-fold by 4QFY19 due to working capital requirements.
“Hence, the group is likely to raise additional equity to finance such an acquisition.”
According to AmInvestment Bank, 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 Dinamik would have been value-destructive.
“As such a possibility has been averted, we remain sanguine of Serba Dinamik’s earnings growth prospects.
“With an outstanding order book that is already reaching RM10 billion currently, up 33 per cent year on year, management is still aiming for topline and earnings growth of 10 per cent to 15 per cent for FY20F, supported by an ambitious order book target of RM15 billion.”