Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 11 Jun 2021, 10:45 AM


Serba Dinamik Holdings - NASDAQ-listed SPAC Foray

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SERBADK has announced its USD5.85m (~RM24m) sponsorship of Data Knights Acquisition Corp – a NASDAQ-listed SPAC focusing on data centres and internet technology sectors. We believe by doing so, the group is seeking to enhance the value and growth of its ICT segment. While immediate-term impact for SERBADK is rather small, ultimately, full impact of this investment would depend on the investment outcome of the target acquisition. Separately, the group had also changed its financial year end to June, from December, starting FY21. Maintain OP and TP of RM2.80.

Sponsorship of Data Knights Acquisition Corp. SERBADK has sponsored a NASDAQ-listed special purpose acquisition vehicle (SPAC) named “Data Knights Acquisition Corp”, with a total investment amount of USD5.85m (~RM24m). Via its initial public offering (IPO), Data Knights has commenced trading of its shares on NASDAQ from 7 May 2021, under the ticker symbol “DKDCU”. Data Knights has managed to raise USD100m of public equity via the offering of 10m shares priced at USD10 per unit. Being a SPAC, Data Knight intends to identify and acquire a business focusing on data centres and internet technology sectors.

Value-add for SERBADK’s ICT segment growth. As at the last closing market cap of USD106m (last price of USD10.07 per share), SERBADK’s 22.9% stake in the SPAC is now worth ~USD24m. While the investment outlay of USD5.85m (~RM24m) is rather small for a company of SERBADK’s size, with its net-gearing staying relatively steady at ~1.0x, we believe SERBADK is seeking to use this opportunity to enhance value for the group’s ICT segment, as well as fuelling its ambitions to continue growing the segment.

Nonetheless, we are still overall neutral on this investment for now, given the relatively small impact on SERBADK’s balance sheet. Ultimately, the full impact from this SPAC would depend on the investment outcome of the target acquisition.

Changing of financial year end to June. On a separate note, the group has also announced the changing of its financial year end to June, from December previously, citing continuing extensions of the MCO which have hampered the ability to finalise the group’s financial statements. This means that its upcoming quarterly results (tentatively scheduled for release by this month) will be 5QFY21, instead of 1QFY21.

Given the change in financial year end, we now introduce new FY21E/FY22E core profit of RM971m/RM702.5m. Note that FY21E consists of 18 months.

Maintain OUTPERFORM, with unchanged TP of RM2.80, pegged to 15x PER on CY21E EPS.

Overall, our OUTPERFORM call is premised on the group’s resilient earnings growth potential, coupled with attractive valuation of ~10x PER.

Risk to our call: (i) lower-than-expected order-book replenishment, (ii) weaker-than-expected margins, (iii) costs overrun or operational disruptions, and (iv) poor outcome of its investment and expansion plans.

Source: Kenanga Research - 10 May 2021

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