Serba Dinamik finds opportunities in the North Sea

KUALA LUMPUR: Serba Dinamik Holdings Bhd’s latest acquisition could serve as a cornerstone for the group to build its operations and penetrate the North Sea Market, says AmInvestment Bank research.

The research house, which has a “buy” call and fair value of RM2.20 on Serba Dinamik, said the purchase of Wellahead Engineering is in line with the group’s expansion strategy.

“The group remains on the prowl for further value-enhancing acquisitions to expand its oil & gas maintenance-focused expertise and technical capabilities into existing markets while aggressively venturing into new geographical locations,” it said.

The UK’s Daily Business reported that Serba Dinamik is purchasing an 80% stake in Wellahead Engineering, an Aberdeen-based precision engineering service provider for the North Sea oil & gas industry, for £1.5mil (RM8mil) cash.

Wellahead commenced operations in 1998 and employs 15 staff. In FY19 it generated revenue of £2.5mil with EBITDA margin of 16% and net profit margin of 12%. This translates to a value-enhancing acquisition PE of 6x, said AmInvestment.

While the research house noted that the acquisition is small relative to Serba Dinamik’s Rm6bil market cap, the deal will open create opportunities for the group.

“The deal will also provide Wellahead’s high quality capabilities with new opportunities for growth and access to Serba’s existing client base not just in Malaysia but also in the group’s rapidly expanding operations in the Middle East which has experienced an explosive FY14–FY19 compounded average growth rate of 63% over the past 5 years,” it said.

Moving forward, Serba Dinamik’s earnings growth will be largely driven by the Middle East and Malaysia, which accounted for 90% of FY19 revenuue.

The group’s 1QFY20 outstanding order book surged 59% quarter-on-quarter to RM17bil currently from the massive US$1.8bil Innovation Hub property development project in Abu Dhabi, already exceeding its FY20F year-end target of RM15bil.

“Serba’s FY20F net gearing has improved from a high 0.9x to a more comfortable 0.6x with the 10% equity placement in May this year.

“Hence, Serba’s recurring income profile together with lower balance sheet risks translate to an unjustified FY21F PE of only 10x vs. its closest peer Dialog Group’s 30x,” said AmInvestment.

[Source: “Serba Dinamik finds opportunities in the North Sea” TheStar.com.my]