Serba Dinamik’s acquisition in Maju’s hydropower firms garner positive views

KUALA LUMPUR: Serba Dinamik Holdings Bhd’s (Serba Dinamik) 40 per cent acquisition in Maju Holdings Sdn Bhd’s (Maju) hydropower firms has garnered positive views from analysts.

In a filing on Bursa Malaysia, Serba Dinamik announced that wholly-owned subsidiary Serba Dinamik Group Bhd (SDGB) had entered into a Memorandum of Agreement (MOA) for the acquisition by SDGB of 40 per cent equity stake held by Maju in three subsidiaries: Maju Renewable Energy Sdn Bhd, Maju RE (Talang) Sdn Bhd and Maju RE (Temenggor) Sdn Bhd.

“We are positive on the acquisition as it is in line with its strategy of diversifying into asset ownership business model whilst expanding core businesses,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.

Kenanga Research noted that upon completion, Serba Dinamik is likely to be awarded with the engineering, procurement, construction and commissioning (EPCC) contract for the power plants on a turnkey basis which is valued at approximately RM560 million.

The research arm further noted that Serba Dinamik will also undertake the related 21year operation and maintenance (O&M) contract up to RM222 million assuming RM10.6 million per annum based on the average cost of two per cent per annum on the capital expenditure (capex).

“The EPCC is expected to commence by early third quarter of 2017 (3Q17) for 24 months.”

Meanwhile, Kenanga Research also highlighted that these hydropower plants could generate net earnings of RM7 million per annum to Serba Dinamik at net 40 per cent stake, less than two per cent of financial year 2018 estimate (FY18E) bottom-line.

This was assuming project internal rate of return (IRR) of 15 per cent, 21-year contract period and net margin of 12 per cent.

“Last week, Serba Dinamik announced that the proposed 10 per cent private placement is completed with RM427.2 million gross proceeds raised, implying the transacted price of RM3.20 per share.

“Recall that the proceeds will be used to fund the partial development of Pengerang ecoIndustrial Park (PeIP), Pengerang International Commercial Centre (PICC) and working capital requirement for the EPCC contract relating to the Tanzania project.”

Overall, Kenanga Research maintained FY17-18E earnings as this first contract win of RM782 million accounted for 26 per cent of the research arm’s FY18 replenishment assumption of RM3 billion.

The research arm pointed out that post win, it will enlarge Serba Dinamik’s outstanding order-book by 15 per cent to RM6 billion, of which RM4 billion is from O&M and RM2 billion from EPCC.