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Further upside to Serba Dinamik with favourable outlook

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KUCHING: Analysts have revealed that they see further upside to Serba Dinamik Holdings Bhd’s (Serba Dinamik) earnings per share (EPS) growth with CSE Global (CSE) riding on a favourable outlook in the shale-oil production space.

Affin Hwang Investment Bank Bhd (Affin Hwang) highlighted this after recently hosting Serba Dinamik and CSE management on a NDR to Singapore.

According to Affin Hwang, on how Serba Dinamik’s 24.8 per cent stake in CSE would deliver synergies, the respective management teams revealed that the group would leverage on CSE’s network in the US or Australia, while CSE would benefit from Serba Dinamik’s network in the Middle East, Malaysia and Central Asia.

Additionally, market penetration time can be sped up by leveraging on respective current facilities and there will be more product offerings and technical exchanges.

“For instance, Serba Dinamik was recently invited for a potential job in Mexico by Petroliam Nasional Bhd (Petronas) where it recently secured six blocks,” the research firm said.

“As Serba Dinamik has no existing facility in the region, it is able to make use of CSE’s facility, enabling them to pass the first stage of consideration.”

Affin Hwang believed that associate profits could potentially surprise to the upside against the research firm’s current RM4 million 2019E profit.

It noted that CSE recorded a S$10 million core net profit in the first half of 2018 (1H18) and with Serba Dinamik’s 25 per cent stake, this amounted to RM7.5 million for the latter.

“As 90 per cent of CSE’s business is recurring in nature, quarterly earnings should be relatively stable, and this has also yet to include other asset projects like Kota Marudu (RM3 million profit).”

On Serba Dinamik’s asset construction progress, Affin Hwang noted that the Terengganu water treatment plant saw a construction slowdown in the second quarter of 2018 (2Q18) due to delays in obtaining permits after the change in government and project financing delays.

“However, these issues have been resolved and should allay investor concern as we anticipate a stronger 3Q project contribution.

“Meanwhile, Serba Dinamik is on track to complete the construction of the three hydropower plants in Kota Marudu by end-2018.

“The construction work for 60 megawatt (MW) hydropower plant in Perak is guided to start in 4Q18.” Affin Hwang said that Serba Dinamik currently has three hydropower plants under its asset portfolio from Kota Marudu, Sabah (29.1MW), Perak (60MW) and Laos (30MW).

“With current capacity at 120MW, Serba Dinamik is confident in securing a few more hydro-based projects, and aims for a total asset capacity of 200MW.

“This would further boost its orderbook size nearer to its end-2018 target of RM7.5 billion (from RM6.9 billion currently), by securing the construction contract as well as the plant-maintenance concession.

“Once completed in 2020, the current portfolio should contribute circa 10 to 15 per cent of total group profit.”

All in, Affin Hwang continued to favour Serba Dinamik over the group’s peers due to management’s solid execution track record and long-term vision.

As such, the research firm reaffirmed its ‘buy’ call on the stock.

“It is also our top Malaysia oil and gas (O&G) sector pick and a country top pick.”

[Source: “Further upside to Serba Dinamik with favourable outlook” published by BorneoPost Online]
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