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Maybank IPO Note
(MYR1.50) IPO: Serba Dinamik
Serba Dinamik will be listed on the Main Market of Bursa Malaysia Securities Bhd on 8 Feb 2017. The company is issuing 271.4m new ordinary shares at an issue price of MYR1.50/sh. There is also an offer for sale of up to 118m shares. The IPO application will close on 19 Jan 2016.
Serba Dinamik is an energy services group which provides engineering solution to the O&G and power generation industries with operational facilities in Malaysia, Indonesia, UAE, Bahrain and the UK. Among some of the engineering solutions provided by the group include O&M services, EPCC and other products and services, which accounted for 90.9%, 8.9% and 0.2% of FY15 revenue respectively.
Within the O&M services, Serba Dinamik carries out 1) maintenance, repair and overhaul (MRO) of rotating equipment including gas and steam turbines, engines, motors, pumps, compressors and industrial fans; and 2) inspection, repair and maintenance (IRM) of static equipment and structures including boilers and unfired pressure vessels, piping systems and structures. Within the O&M space, MRO/IRM made up 69.5%/21.4% of FY15 revenue.
For EPCC works, Serba Dinamik focuses on minor fabrications works such as steel structures, piping systems, installation of rotating and static equipment as well as construction of plant, amenities and buildings. The group also has the experience in undertaking EPCC works for small hydropower plants (Kota Marudu, Sabah). In short, Serba Dinamik’s focus is in the O&G and power generation industries.
Besides O&M and EPCC works, Serba Dinamik also provides technical training, ICT solutions and services, products and parts as well as logistics services. It also has a 30% stake in Adat Sanjung, which holds 100% equity in One River Power – the holder of three Feed-in Approval certificates granted by the SEDA for the development of three small hydropower plants (construction to complete by end 2017) in Kota Marudu, Sabah, which has a total capacity of 29.1MW.
Serba Dinamik is leveraging on its core competencies in the O&G and power generation industries to expand its businesses. Apart from providing engineering solutions, the group also adopts asset ownership business model in selective fields, with its first asset being the 51%-owned compressed natural gas (CNG) plant in Muaro Jambi, Sumatra, Indonesia – commenced operations on 25 Nov 2016. The design capacity for its CNG plant is 2.5 MMSCFD but currently, the permitted capacity is only 1 MMSCFD, pending the issuance of the official trading permit.
In terms of industry breakdown, Serba Dinamik’s revenue is largely derived from the O&G industry and the power generating industry. These two segments accounted for 94.9% and 5.0% of its FY15 revenue respectively. Geographically wise, local sales made up 34.6% of FY15 revenue while export market contributed another 65.4%. Key customers include Petronas Carigali S/B and Sarawak Shell in Malaysia, Petronas Carigali (Turkmenistan) S/B in Turkmenistan, and Energy Engineering & Services in UAE, Qatar, among others.
Serba Dinamik’s strength lies in its ability to provide MRO customers a competitive pricing compared to brand owners or agents. Also, it is a Petronas-licensed company, which is a key criteria for it to be able to provide products and services to oil majors and other O&G service providers in the industry.
From this IPO, Serba Dinamik is expected to raise MYR407.1m which will be utilized for expansion of business and operational facilities (MYR300m), working capital (MYR29.3m), repayment of bank borrowings (MYR60m) and expenses related to this listing exercise (MYR17.8m).
Of the MYR300m raised for expansion, Serba Dinamik intends to establish a new MRO and IRM centre (c.100 acres) in Sarawak. This will allow the group to provide MRO of large rotating equipment, which are normally sent to Peninsular Malaysia and other countries like Singapore and Germany. The new centre will also enable Serba Dinamik to carry out additional IRM services. At present, the group has received an offer to purchase a 30-acre leasehold land in Tanjung Kidurong, Sarawak for MYR12.3m (inclusive GST). The estimated total cost of the new MRO and IRM centre is estimated at MYR247.2m (land cost + MYR235m development cost). This will be partially funded by MYR70m raised from this IPO, while the balance will be funded through internally generated funds, working capital and/or bank borrowings.
The group has also earmarked MYR20m to establish a new fabrication facility to support its EPCC works and IRM services in Johor. At present, most of the fabrication activities are undertaken at customers’ sites. The new fabrication site, which will be constructed in Bandar Penawar, Kota Tinggi, Johor, will be ready by 1Q17. This will support fabrication works for the Refinery and Petrochemical Integrated Development (RAPID) project and future projects within Pengerang Integrated Petroleum Complex (PIPC).
Serba Dinamik had also allotted MYR7m to upgrade four existing service centers in Malaysia – Paka in Terengganu, Miri in Sarawak and two in Labuan, which include adding new machineries, equipment, and tools. MYR8m has also been earmarked to construct additional facilities in the logistics centre in UAE.
Serba Dinamik intends to utilize MYR95m for M&As. Currently, management is exploring two investment opportunities: 1) companies able to provide maintenance services for gas turbines with output power of more than 160MW, as well as able to manufacture critical rotating equipment parts and components. The group is engaged with companies in the US and Europe; 2) small hydropower generation companies in the East Coast and the Northern regions of Peninsular Malaysia.
Serba also plan to utilize MYR70m for the development of small gas power plants and water utilities in Indonesia. Apart from the CNG plant in Muaro Jambi, the group intends to develop, own, operate and maintain the following assets: 1) a small gas power plant in Ambon Island, Indonesia of which an engineering company has agreed to lease the 0.8MW gas power plant for 10 years; 2) one 4MW gas power plant in Muaro Jambi, Sumatra Indonesia, of which it has signed a MoU with PT PLN (Persero) pertaining to the sale of power from its small gas power plant; and 3) two gas power plants (1MW and 4MW) and one water treatment plant in East Kutai, East Kalimantan, Indonesia.
Besides the expansion that is funded by the IPO proceeds, Serba Dinamik plans to develop and own an industrial park in Sarawak, incorporating a centralised utility facility (CUF) providing electricity, steam, chilled water, demineralised water, wastewater treatment, industrial gases and compressed air. This is to capitalise on its previous experience in undertaking maintenance of CUF in Kuantan, Pahnag, as well as Kerteh, Terengganu. The group will benefit from the O&M of the CUF as well as services rendered to tenants of the industrial park. Meanwhile, the management of the industrial properties would be subcontracted to an external party. At present, the group is in the midst of negotiating with the authorities for a suitable site.
In terms of profitability, Serba Dinamik is set to report the highest PAT since 2013. Up to Jun 2016, PAT jumped 41% YoY on the back of a 78% YoY increase in revenue. 2H16 earnings would likely underpinned by the remaining order book of ~MYR143m for its O&M services and outstanding EPCC works of MYR258.4m for Malaysia and USD54.6m for overseas jobs.
From this IPO, Serba Dinamik will pare down its borrowings by MYR60m, which will reduce its total outstanding loans and bank borrowings from MYR518.7m to an estimated MYR458.7m. Based on its pro forma balance sheet, it will become a net cash company after the listing vs. a net gearing of 0.54x as at Jun 2016. Note that the group has MYR289.7m worth of USD loans at end Jun-2016.
Risk wise, the group is subject to the fluctuation in commodity prices such as CNG and oil prices. However, by and large, the O&M segment is less affected. Serba Dinamik is also subject to regulatory risk as most of the counter parties for its businesses operated under asset ownership business model are local authorities. Currency fluctuation is another concern, as 65.4% of its revenue is export-oriented. It also has USD-denominated loan.
Valuation wise, Serba Dinamik is trading at a trailing FY15 PER of 12.8x, based on an IPO price of MYR1.50. This is lower than its peers (Uzma, KNM Group, Deleum) which trade at a trailing PER of between 8.8x-96.7x. When annualised, the stock is trading at a more compelling FY16 PER of 8.9x. Serba Dinamik intends to pay out at least 30% of its PAT (excluding any unrealised income from adjustments due to accounting policies that are non-cash in nature) as dividend.
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Jan 19 2017, 10:39 AM
......please buy grandma FD @ Fixed Deposit for 
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