The group plans to leverage on Wellahead as a cornerstone to build its operations and penetrate the North Sea market which has yet to significantly contribute to group revenue. — AFP photo
KUCHING: Serba Dinamik Holdings Bhd’s (Serba Dinamik) acquisition of a stake in Wellahead Engineering, an Aberdeen-based precision engineering service provider, could open up opportunities for the group in the North Sea market, analysts observed.
According to news reports, Serba Dinamik has acquired an 80 per cent equity stake in Wellahead, an Aberdeen-based precision engineering service provider for the North Sea oil and gas industry, for 1.5 million pounds (RM8 million) cash. The founder Mike Coutts retains the remaining 20 per cent equity stake and will continue to manage Wellahead.
“While this is a relatively small acquisition compared with Serba Dinamik’s market cap of RM6 billion, the group plans to leverage on Wellahead as a cornerstone to build its operations and penetrate the North Sea market which has yet to significantly contribute to group revenue,” the research team at AmInvestment Bank Bhd (AmInvestment) said in a report.
It also pointed out that deal will provide Wellahead’s high quality capabilities with new opportunities for growth and access to Serba Dinamik’s existing client base not just in Malaysia but also in the group’s rapidly expanding operations in the Middle East which has experienced significant growth in the financial year 2014 (FY14) to FY19 with a compounded average growth rate of 63 per cent over the past five years.
The research team noted that Wellahead’s outstanding order book stands at five to six million pounds, providing mid-range earnings visibility with no debt currently.
AmInvestment said it is positive on this development even though earnings accretion will not be substantive due to the marginal scale of the transaction.
“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.
“Nevertheless, Serba Dinamik growth trajectory will still be largely driven by the Middle East and Malaysia, which account for 90 per cent of FY19 revenue,” the research team said.
Serba Dinamik’s 1QFY20 outstanding order book has surged by 59 per cent quarter-on-quarter (q-o-q) to RM17 billion currently from the massive US$1.8 billion (RM7.7 billion) Innovation Hub property development project in Abu Dhabi, already exceeding its FY20F year-end target of RM15 billion.
It also pointed out that Serba Dinamik’s FY20F net gearing has improved from a high 0.9-folds to a more comfortable 0.6-folds with the 10 per cent equity placement in May this year.
“Hence, Serba Dinamik’s recurring income profile together with lower balance sheet risks translate to an unjustified FY21F price earnings of only 10-folds compared with its closest peer Dialog Group’s 30-folds,” it added.