‘Buy’ call initiated on Serba Dinamik

PETALING JAYA: RHB Research has initiated coverage on Serba Dinamik Holdings Bhd with a “buy” recommendation and a target price of RM2.78, an upside of 49%.

Research house analyst Wan Mohd Zahidi said in a note yesterday, the target price was derived using an SOP-based (sum-of-parts) valuation.

“We valued the firm period of its assets (the assets have an optional extension period; we excluded the extension from our forecasts) using discounted cash flow (DCF), assuming a 7.5% WACC (weighted average cost of capital).

“We also conducted a corroborative DCF calculation, from which we derived a value of RM2.86 (WACC: 7.5%, TG: 1%),” he added.

In addition, Wan Mohd Zahidi said the research house expects the oil and gas services company’s earnings to grow by 10% and 9.8% year-on-year in financial year 2017 (FY17) and FY18 respectively.

He said the growth would be driven by operation and maintenance (O&M) and engineering, procurement, construction and commissioning (EPCC) contracts, supported by recurring earnings coming from its assets.

Furthermore, Wan Mohd Zahidi said the group has a five-point strategy for future expansion, which includes having the O&M expertise to operate small power plants, expanding existing facilities and establishing new ones, developing small gas power plants and water utilities facilities, as well as making new investments and acquisitions.

Moreover, he said the group would also be able to capitalise on the state’s infrastructure growth through its presence in Miri, Bintulu, as well as in Labuan.

“As more oil and gas, power generation and infrastructure investments pour into Sarawak, it could leverage on its O&M and EPCC expertise to complement the state’s economic growth,” he said.