Case Study of Serba Dinamik Holdings Berhad (5279)

By Stella Goh – Market Data Analyst | 5 September 2019

Overview

Serba Dinamik Holdings Berhad (Stock code: 5279, SERBADK) is an investment holdings and provision of management services company founded in the Year 1993, which primarily involved as Global Integrated Engineering Services’ total solutions provider to broad industries such as Oil & Gas, Power, Water, Petrochemical and Steel.

SERBADK is listed in the main market on 8 February 2017 and currently has few operational offices not only located in Malaysia but also in Indonesia, United Arab Emirates (UAE), Qatar, Bahrain and United Kingdom (UK). Their global reach can be through their associates’ span in Singapore, Australia, New Zealand, USA, Mexico, Switzerland, Italy and Netherland.

Business Model

SERBADK provides engineering services & solutions ranging from Operation & Maintenance Services, Engineering, Procurement, Construction & Commissioning (EPCC), System Integration, IT Solutions, Education & Training and Global Trading. The engineering services & solutions such as Oil & Gas (O&G) production platform, Crude O&G refineries, petrochemical manufacturing plants, Liquefied Natural Gas (LNG) & Compressed Natural Gas (CNG) plants, Power Production Plants, Water & Utility Plants, Chemical Plants and Biogas & Biomass Plant.

Financial Review

Based on the past 5 financial years of revenue chart above, SERBADK has achieved y-o-y growth from FY2014(+40.95%), FY2015 (+85.63%), FY2016 (+54.56%), FY2017 (+25.55%) and 2018 (+20.6%). On the CAGR basis, the revenue has grown 44.37%. The growth is mainly attributable to increase of successful tender of projects both locally and overseas, an increase in Operation & Maintenance activity in the Middle East as well as the revenue recognition from the Engineering, Procurement, Construction & Commissioning (EPCC) contracts secured through their asset ownership model.
SERBADK has increased its gross profit from FY2014 (+21.89%), FY2015 (+108.84%), FY2016 (+60.77%), FY2017 (+29.49%) to RM582.32 million equivalents to (+20.33%) in FY2018. On a CAGR basis, the gross profit has grown 51.24% based on 5 years. On Annual Report FY2018, operations and maintenance segment were the main profit contributor making up of 90.04% of gross profit for the year while EPCC segment and other supporting services segment provided of 9.60% and 0.36% of gross profit for the year respectively.

The Profit Before Tax (PBT) grew from RM67.68 million in FY2014 to RM437.63 million equivalents to 26.46% in FY2018. Similarity, the Profit After Tax (PAT) also grown from RM67.37 million in FY2014 to RM392.84 million equivalents to 28.89% in FY2018. The Profit Before Tax (PBT) and Profit After Tax (PAT) both grew by 59.46% and 55.39% on a CAGR basis respectively. Based on Annual Report FY2018, the growth is mainly attributable to the revenue of CAGR of 44.37% in FY2018 together with the improvement in efficiency and reducing of overheads.


Financing & Liquidity

Based on the chart shown above, the finance costs increasing from FY2014 until FY2016 with a slight decrease in FY2017 but increase tremendously higher (+15.65%) in FY2018 compared to the previous year. Based on my computation of liquidity ratio, indicates that SERBADK has a current ratio of 2.568 times in FY2018 compared to 1.633 times in FY2017. An increasing of current ratio in FY2018 from FY2017 indicates that SERBADK do not face any liquidity problems and capable to pay off their obligations when comes due in FY2018 by using the current assets such as inventories, contract assets, trade & other receivables, deposits & prepayments, current tax assets, cash & cash equivalents and other investment.

Cash Flow Statement

The net cash from operating activities had a slight decrease in FY2018 amounted to RM83.24 million from RM85.34 million in FY2017. The company is still healthy, with this amount of cash generated.

The net cash from investing is increased from RM354.11 million in FY2017 to RM858.63 million in FY2018 due to increase of acquisition of property, plant and equipment, acquisition of shares in associates, decrease terms of deposit pledged to bank, and dividend received from a quoted associate.

The net cash from financing activities is increased from RM378.22 million in FY2017 to RM1.24 billion in FY2018, according to the Annual Report FY2018. The increased financing activities is due to the issuance of Sukuk which used to provide working capital as well as to refinance the existing borrowings to drive down the financing cost and cost of capital. SERBADK also has issues RM300 million of Islamic Medium-Term Notes (IMTNs) with a tenure of 5 years priced at 4.95%, RM500 million of IMTNs with tenure of 10 years priced at 5.30% as well as RM10 millions of Islamic Commercial Papers that are short-term tenure.

The cash and cash equivalents of SERBADK has increased from RM265.41 million in FY2017 to RM695.90 million in FY2018 indicates that company have more cash during the year.

Future Prospect & Challenges

Serba Dinamik has achieved an outstanding order book amounted to RM9.4 billion, putting it on track to meet its target of RM10 billion this year. While for the tender books, SERBADK has achieved RM15 billion, with a 30$ to 40% of success rate. (Sources: TheEdge 28Aug2019)

SERBADK has successfully secured an engineering, procurement, construction, and commissioning (EPCC) contract in Uzbekistan worth an estimated of US$250.3 million equivalent to RM1.05 billion. The EPCC jobs such as 90-tonne per day chlorine processing plant in Hazarasp Free Economic area in Khorezm region, as well as 26MW/h steam turbine independent power plant to be completed in 2 years later. Starting from 8 August 2019 until 7 August 2021. (Sources: TheEdge 14Aug2019)

Besides, SERBADK also has secured two operations and maintenance contracts from Petronas Carigali Sdn Bhd in March 2019. The first contract is the provision of maintenance services for weir gas compressor is effective from 10 June 2019 until 9 June 2020. The second contract is the provision of maintenance for capstone micro-turbine generator effective from 18 June 2019 until 17 June 2022. (Sources: TheEdge 14Aug2019)

According to Annual Report FY2018, SERBADK also expanding the hydropower projects and investment by adding 20MW EPCC projects in LAOS in addition to their existing 30MW hydropower plant in Kota Marudu, Sabah. The water and utility front with their existing water treatment plants EPCC projects will also expand in Terengganu and their Chlor-Alkali plant in Tanzania. Furthermore, SERBADK also exploring and investing in prospects of industry 4.0 opportunities. For examples, SERBADK partnered with Microsoft to develop Augmented Reality / Virtual Reality solutions for industrial applications as well as acquired 30% of stake in eNoah iSolution India Group to enhance their IT capabilities.

My Insight

Based on my calculation, Serba Dinamik Holdings Berhad has a fair value of RM14.516. The current market value of SERBADK is RM4.36 which is undervalued. (Based on 4 September 2019) SERBADK have a beta of 0.879 (500days) indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), SERBADK has an expected market return of 6.18%.

In my opinion, SERBADK has a bright prospect in the future due to its actively engaging and participating in various bidding large projects. Even though the Return on Equity has a slightly decreasing from FY2017 to FY2018, it still able to achieve an ROE with double-digit which is 18.747 times. I believe the company can achieve outstanding performance and secure more contracts in the future.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website is for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from your own action. You need to do your research to make your own investment decision wisely.

Case Study of Econpile Holdings Berhad (5253)

By Stella Goh – Market Data Analyst | 26 August 2019

Overview

Econpile Holdings Berhad is an investment holdings company established by the Group of Managing Director, Mr The Cheng Eng, which principally involved as a leading specialists’ provider for piling and foundation services in Malaysia. There are two wholly subsidiaries of companies under ECONBHD such as Econpile (M) Sdn Bhd and Tropical Broadway Sdn Bhd. Econpile (M) Sdn Bhd engaged in the business of piling and foundation services for property development while for Tropical Broadway Sdn Bhd engaged in the business of rental for investment property and machinery. ECONBHD also holds a Grade 7 License from the Construction Industry Development Board of Malaysia, which allows the Group to tender projects of unlimited values in the categories of building and infrastructure works.

Business Model

ECONBHD provides piling and foundation services such as earth retaining systems, earthworks, substructure and basement construction works, which are mainly for high-rise property development and infrastructure nationwide such as in Klang Valley, Penang, Johor, Pahang, Sabah and Sarawak. The notable projects completed since inception such as bored piling for Klang Valley Mass Rapid Transit, Pavilion Shopping Centre, as well as a deep basement for Elite Pavilion, W Hotel and The Residences. The company also involved in the construction of bridges, elevated highways, electrified-double tracking projects and power plants. ECONBHD also generates some recurring revenue from construction contracts and rental income such as investment holding rental of investment properties and machinery, trading of machinery and some related accessories at a full-fledged workshop located in Rawang.

Financial Review

Based on the past 5 financial years as above, the net profit for the year is increasing years by years start from FY2014 (+11.32%), FY2015 (+50.27%), FY2016 (+44.91%), FY2017 (+19.58%) until FY2018 (7.84%), marking its best-ever full-year net profit.

According to the Annual Report FY2018, it stated that the revenue derived from piling and foundation works for property developments contributed of RM548.5 million equivalent to 75.3% of the year 2018 group revenue (shown above), with a growth of 4.7% from RM523.3 million previously. While for the infrastructure and other projects, it increased more than three times from RM49.6 million, contributed to the remaining of RM179.9 million or 24.7%.

Gross profit increased 1.4% from RM130.1 million in FY2017 to RM131.9 million in FY2018 due to the larger proportion of infrastructure works. The gross profit margin lower from 22.4% in FY2017 to 18.1% in FY2018 mainly due to the hike of steel price.

ECONBHD also incurred with higher operating expenses of RM26.7 million in FY2018 from RM24.9 million in FY2017 due to higher expenditure managing the larger base of ongoing projects. It resulted in the finance costs of the company also increased by 41% from RM1.7 million in FY2017 to RM2.4 million in FY2018.

Based on the chart shown above, Since the finance cost is increasing from 2015 until 2018, is the company able to pay back its liabilities? Based on my computation of liquidity ratio, indicate that ECONBHD has a current ratio of 2.086 times in FY2018 compared to 2.177 times in FY2017. Although there is a slightly decreasing in this ratio, the company still do not face any liquidity problems and are capable of paying off the obligations when comes to due in FY2018 by using the current assets such as trade and other receivables, prepayments, other assets, cash and cash equivalents.

Cash Flow Statement

Net Cash from Operating activities in FY2018 amounted to RM11.3 million, which is lower than the FY2017 figure of RM52.8 million. But it still considers healthy with this amount of cash generated.

The Net cash from investing is decreased in FY2018, which is RM4.4 million, while RM 32.2 million in FY2017 due to lower capital expenditure.

Net cash from financing activities in FY2018 is in a negative figure which is (- RM19.2 million), while in FY2017 is (- RM22.452 million). It was due to 2 factor, lower dividend payout in 2018 camper to 2017 and debt reducing by paying back partial loan.

Total cash and cash equivalents of ECONBHD has decreased to RM24.2 million in FY2018 compared to RM36.4 million in FY2017 to fund the working capital requirements of a larger project portfolio.

Future Prospect & Challenges

According to Annual Report FY2018, management has stated that ECONBHD has an outstanding order book of RM1.1 billion and it successfully secured over of RM450 million in new projects, which comprising a healthy mix of new property development and infrastructure projects.

The biggest project is known as Pavillion Damansara Heights, which sits between two Mass Rapid Transit stations. In FY2018, they have carried out the basement works in Phase One as well as moving into initial stages of Phase Two. However, ECONBHD also successfully tendered for and won its first Light Rail Transit (LRT) contract amounting to RM208.7 million to undertake the bored piling and general infrastructure works for Packages GS04 of the 37 kilometres of LRT3 Line. Besides, ECONBHD also secured RM119.1 million contracts to perform the bored piling, projects, pile caps substructure and basement work for the redevelopment of TNB quarters. Last but not least, some investment banks stated that ECONBHD could be a potential beneficiary for the revival of East Coast Rail Link (ECRL) project. As a specialist’s contractors, ECONBHD may responsible for piling for this project. (Sources: TheSunDaily 15Apr2019)

How can ECONBHD maintain its strong record spanning for three decades? With experience technical expertise it helps the company to secure more jobs and capture for future growth. The strategies that they implement is to submit tender for property-related projects and optimise the fleet and workforce capability.

In line with the new government, it brings an adverse impact on the infrastructure sector in Malaysia. ECONBHD continues to tender for mixed development projects in Klang Valley to secure more property related jobs going forwards as their core expertise of piling works and substructure works in an urban environment. Besides, ECONBHD also enhances its operational efficiency by enhancing the skillsets of their workforce through extensive training to improve their business process with stringent planning and careful execution.

My Insight

Based on my calculation, Econpile Holdings Berhad has a fair value of RM1.446. The current market value of ECONBHD is RM0.785 (Based on 23 August 2019 is undervalued. While for dividend, ECONBHD has declared a first single-tier interim dividend with a total of 1.6 Sen in respect of FY2018. Based on the AR 2018, the dividend payout of RM21.4 million constitute of 24.6% of net profit in FY2018 thus complying with a minimum of 20% dividend policy. ECONBHD also have a beta of 1.783 (500days) indicates that the company has slightly volatile than the market. Based on my computation of CAGR calculation, ECONBHD has an expected market return of 6.24%.

In my opinion, the prospect of this company is very exciting because ECONBHD successfully secured a few projects and this company have a very strong fundamental. Even though the Return on Equity has a slightly decreasing from FY2016 to FY2018, it still able to achieve an ROE with double-digit which is 23.563 times. I believe that the company can achieve a fantastic performance in the future.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from you. You need to do your research to make your own investment decision wisely.

Case Study of Perak Transit Berhad (0186)

By Stella Goh – Market Data Analyst | 19 August 2019

Overview

Perak Transit Berhad is an investment holding company, which principally involved in the operations of an integrated terminal complex and provides public transportation services in Malaysia. It has an integrated public transportation terminal (IPTT) in Ipoh, Perak which is also known as Terminal Meru Raya (New Name), before that it is known as Terminal Aman Jaya.

On 5 September 2008, Perak Transit Berhad was incorporated as a private limited company in Malaysia. While on 6 October 2016, it has been listed in ACE Market and successfully transform into Main Market listed in Bursa Malaysia on 19 December 2018.

Business Model

Perak Transit Berhad has a robust recurring income-driven from Terminal Meru Raya (Aman Jaya) in Ipoh, Perak. Besides provide management services for bus operations, they also diversify their business into different sectors such as rental space for advertisement, seminar room, office, shop, booth, kiosks, bus services and petrol station operation. Their primary revenue of this company comes from Bus Services and Petrol Station Operation. Under the government’s development of blueprint, the operation of bus terminal by Perak Transit became a monopolised business model in Perak.  All the buses, as well as taxi, are charged entrance fees and other fees (included with tax) for the usage of basement car park and lavatory. Besides, all buses will refill the petrol at the designated petrol station owned by Perak Transit Berhad before they set off to a specific location.

Based on the past five financial years as above, the profit for the year is increasing years on years start from FYE2014 (+86.92%), FYE2015 (+42.32%), FYE2016 (+13.22%), FYE2017 (+33.56%) until FYE2018 (+24.18%). According to Warren Buffet, he said that he only would consider for the company which have listed for about ten years or above. For PTRANS, it listed on FYE2016 until FYE2018 which is three years. It does not meet the requirement for Warren Buffet. However, the revenue, EBITDA, total assets of the company also keep on increasing years by years.

The most important thing that an investor will concern is since the borrowings for the company are increasing due to the business expansion, is the company able to pay back his liabilities? Based on my computation of liquidity ratio, we indicate that PTRANS have a slightly decreases in the current ratio in FY2018, which is 1.1910 times compared to FY2017, which is 1.5071 times. However, PTRANS still do not face any liquidity problem and it even capable of paying off the obligations when it comes to due in FY2018 by using the current assets such as inventories, trade and other receivables, other assets, cash and bank balances.

Cash Flow Statement

Based on the cash flow statement of PTRANS, the Net Cash from Operating activities in FY2018, which is RM27,211,160 is lower than FY2017, which is RM40,719,562. Is this a bad sign for the company? If we look more closely, you will realise PTRANS paid out a massive amount of the trade and other receivables and buy more other assets in FY2018 which cost him RM16,692,674 and RM4,799,623. While in FY2017 trade and other receivables only cost him RM506,605 and RM4,799,623 in other assets which are lower than FY2018. Therefore, it results in the net cash from operating activities decreased in FY2018 when compared to FY2017.

Based on the cash flow from investing activities, the Net cash from investing activities is increasing in FY2018, which is RM80,875,258 from RM74,538,392 in FY2017. It was due to purchase more new property, plant and equipment in FY2018, which cost him RM81,353,339, which is higher than FY2017 with the amount of RM71,245,621. Therefore, it results in the net cash from investing activities was higher in FY2018.

While based on the cash flow from financing activities, the net cash flow from financing activities in FY2018, which is RM50,294,965 is higher compared to FY2017, which is RM25,028,092. An increase in this number indicates that the cash has come into the company will help to boost the asset levels.

Future Prospect & Challenges

Perak Transit (PTRANS) has built a new bus terminal in Kampar. I believe that the Kampar Terminal will be served well as a transportation hub in the university town with UTAR, TARC and Westlake International School amidst a growing population. However, based on The Edge newspaper, the full certification of completion and compliance (CCC) has yet to be received as inspection are still ongoing, while the management is also addressing some issues of the routing of electricity to supply in Terminal Kampar, it shall be resolved in the 4th Quarter of FY2019. They expect that the terminal can be fully operation start in 1st Quarter of FY2020, which is after 2 to 3 months of renovations work for new tenants.

According to the Managing Director Dato’ Sri Cheong Kong Fitt, has stated that the bus terminal is the core business for the company which intends to expand more for future earnings growth. PTRANS had received a Letter of Intent from SPAD on the appointment as network operator for the SBST Programme for a period of 8 years. Following by the Terminal Kampar’s operational commencement, the management will subsequently look to take the new project next year to replicate experience and expertise from operating terminals Aman Jaya and Kampar to develop the new bus terminals in Bidor and Tronoh which would individually cost between RM150 million and RM200 million with two years construction period. Besides, Bidor and Tronoh, Perak Transit also has been acquiring land in Kinta but also exploring opportunities for construction and management of Terminal in Termerloh, Pahang, Kemaman, and Terengganu.

My Insight

Based on my calculation, Perak Transit Berhad has a fair value of RM0.947. The current market value of Perak Transit Berhad is RM0.19 (Based on 15 August 2019). However, for the Discounted Earnings Model, it shows that Perak Transit currently is undervalued. PTRANS is committed to maintaining its dividend payout around 35%, which is above the official policy of 25% or more. As a side note, the management has guided that the dividend payout would now occur twice a year (from three times a year previously). (Sources: The Edge). PTRANS also has a beta (500days) of 0.863 indicates that the company is less volatile than the market. Based on my computation of Compound Annual Growth Rate (CAGR), PTRANS have an expected market return of 6.18%.

In my humble opinion, although the company share capital is vast and the debt is high, we can see that the prospects of this company are very bright. I believe that the company can sustain the business with stable income with stable recurring income.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It would help if you did not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from you.