In a trading stocks note today, RHB Retail Research states that Serba Dinamik has proposed to undertake a private placement of up to 394.6 million or 10 percent of the total number of issued shares, a price to be determined later.
“We are positive on the 10 percent private placement proposal, as it enables the business to grow further with more working capital,” said the research house.
RHB Retail Research also says that Serba Dinamik could raise RM 580.1 million from the exercise, assuming the placement shares are issued at an illustrative price of RM 1.47.
While Serba Dinamik is not in a position of financial distress, the reduction of net gearing to 0.6x from 0.9x also addresses concerns on its short-term liquidity and escalating gearing level, especially after the firm’s decent RM7.7 billion turnkey project win.
“It allows the company to have the financial capacity to expand both its operations and maintenance, including engineering, procurement, construction and commissioning businesses,” RHB Retail Research noted in its trading stocks.
No further debt-raising is needed as long as the company’s orderbook remains below RM 15 billion by end FY20. However, the research house believes they may see an additional RM 300 million debt drawdown with every RM 1 billion orderbook addition.
Serba has also reassured that the net average ratio will still be maintained well below its required threshold of 2.5x vs 1.9x currently.
“We maintain our earnings estimates, but dilute EPS by 10% post private statement on the higher share base. Our TP is adjusted to MYR2.09 from MYR2.19, pegged to a higher FY20F P/E of 14x (from 13x) on its strengthening balance sheet for further expansion,” the research house said.