SERBA DINAMIK HLDGS BHD

MERCURY SECURITIES SDN BHD (A Participating Organisation of Bursa Malaysia Securities Berhad) SERBA DINAMIK HLDGS BHD Initial Public Offering Main Market IPO Report Tuesday, 17 January, 2017 MAIN MARKET TRAD/SERV SUBSCRIBE BACKGROUND Serba Dinamik Holdings Berhad (Serba Dinamik) and its subsidiaries (Group) is an energy services group, provides engineering solutions to the O&G and power generation industries. The Group s business activities comprise of operations and maintenance (O&M), engineering procurement construction and commissioning (EPCC), and other products and services. DETAILS OF IPO Closing of the Retail Offering : 19 th Jan 2017 Listing : 8 th Feb 2017 IPO at an issue price of RM1.50 per IPO Share comprise of a total of 389.4 mil shares, representing 29.2% of the enlarged issued and paid-up share capital of the Serba Dinamik, with details as follows:- IPO Price : RM1.50 Fair Value (FV) : RM1.80 FV Upside : 20% LISTING DETAILS Issuer Manager : RHB Investment Bank & Affin Hwang Investment Bank Berhad Fund Raised (RM mil) : 407.1 Shares on Offer (mil) : 118.0 New Shares (mil) : 271.4 POST LISTING (Mil) Public Issue Offer for Sale Sub- Total (%) Ordinary Share (mil) : 1,335.0 Par value (RM) : 0.50 Institutional Offering (i) Bumiputera investors approved by MITI 35.5 118.0 153.5 11.5% (ii) Malaysian institutional and selected investors 187.8-187.8 14.1% Retail Offering (i) Malaysian Public 26.7-26.7 2.0% (ii) Eligible Directors and employees 21.4-21.4 1.6% Total 271.4 118.0 389.4 29.2% VALUATION/RECOMMENDATION Serba Dinamik s prospect is favourable given its strong market position among its peers and also the ongoing recovery of oil price. We have a subscribe recommendation with a target price of RM1.80 derived based on 13.0x P/E of our estimated EPS of 13.8sen for FYE 30 Jun 2017. The target price represents a potential return of 20.0% over the IPO price and a potential dividend yield of 2.7%. Mkt Cap (RM mil) : 2,002.5 Est Free Float : 30.0% P/E : 12.8 P/B : 2.0 Major Shareholders Dato Karim : 26.1% Hj. Abdul Kadier : 20.7% Dato Awang Daud : 13.2% Prepared by: ~ Research Team

OVERVIEW OF THE GROUP The Group is an energy services group providing engineering solutions to the O&G and power generation industries with operational facilities in Malaysia, Indonesia, UAE, Bahrain and UK. Its business activities comprise O&M services, EPCC and other products and services. The Group Structure is as follows: Source: Company 2

The Group s Business Model and Activities summarised below: Energy services group providing engineering solutions Business activities : 1. O&M Services - MRO of rotating equipment - IRM of static equipment and structures 2. EPCC 3. Other products and services Customer base : 1. O&G Operators 2. Gas processing and oil refineries 3. Petrochemical manufacturer 4. Engineering companies and contractors 5. Independent power producers Industry served : 1. O&G - Upstream : Production - Downstream : Processing, refining and manufacturing 2. Power Generation Additional business moving forward : 1. Asset owner 2. CNG plant 3. Small gas power plants 4. Industrial park with CUF More than 75% of Group s revenue is from the provision of O&M services. FYE 2013 (%) FYE 2014 (%) FYE 2015 (%) FPE 2016 (%) Business Activities Revenue GP Revenue GP Revenue GP Revenue GP O&M Services 78.0 81.1 79.4 87.29 90.9 91.2 89.5 88.2 EPCC 19.9 18.2 12.0 8.68 8.9 8.6 10.3 11.5 Other product and services 2.1 0.7 8.7 4.04 0.2 0.2 0.2 0.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Within the O&M services, maintenance, repair & overhaul (MRO) of rotating equipment accounted for the main source of O&M revenue for the past 3 years. Revenue contribution for O&M Services FYE 2013 (%) FYE 2014 (%) FYE 2015 (%) FPE 2016 (%) MRO of rotating equipment 76.3 75.3 69.5 73.7 IRM of static equipment and structures 1.7 4.1 21.4 15.8 Total 78.0 79.3 90.9 89.5 3

Serba Dinamik carry out MRO of rotating equipment including gas and steam turbines, engines, motors, pumps, compressors and industrial fans; and inspection, repair & maintenance (IRM) of static equipment and structures including boilers, unfired pressure vessels, piping systems and structures. The Group s revenue is largely derived from O&G industry as shown in the table below: Revenue contribution for Industry Sectors FYE 2013 (%) FYE 2014 (%) FYE 2015 (%) FPE 2016 (%) O&G 96.6 95.7 94.9 98.6 Power Generation 3.3 3.6 5.0 0.8 Others 0.1 0.8 0.1 0.7 Total 100.0 100.0 100.0 100.0 The Group s Major Customers for the past 3 years: Customer Name Petronas Carigali Sdn Bhd Petronas Carigali (Turkmenistan) Sdn Bhd Sarawak Shell Berhad Energy Engineering & Services Energy Machine Services L.L.C Petroserv Limited Geographical area served Malaysia Turkmenistan Malaysia UAE, Qatar Oman Qatar Revenue (RM'000) FYE 2013 FYE 2014 FYE 2015 FPE 2016 % of group revenue Revenue (RM'000) % of group revenue Revenue (RM'000) % of group revenue Revenue (RM'000) % of group revenue 119.1 22.2 152.0 20.1 217.6 15.5 139.0 15.2 80.9 15.1 123.7 16.4 166.4 11.9 72.0 7.9 62.6 11.7 50.1 6.6 85.6 6.1 30.7 3.4 - - 20.2 2.7 224.2 16.0 23.1 2.5 - - 59.5 7.9 157.8 11.3 9.3 1.0 58.0 10.8 33.7 4.5 26.6 1.9 - - Source: Company 4

KEY MANAGEMENT Key Management Nationality Age Designation Profiles Dato Karim Malaysian 51 Group MD/CEO - Bachelor in Mechanical Engineering in 1989 - Registered member of the Board of Engineers, Malaysia since 1996 - Member of Asean Federation of Engineering Organisation since 2002 - Extensive career spanning 29 years as an engineer Dato Awang Daud Malaysian 56 ED/Deputy CEO - Master in Mechanical Engineering in 2007 - Extensive experience in rotating equipment Syed Nazim Bin Syed Faisal Malaysian 36 Goup CFO - Master Degree in Islamic Finance Practice - Member of MIA since 2007 Ir Abdul Halim Bin Mohd Damiah Afandi Bin Abd Hamid Malaysian 49 VP, EPCC Business Unit Malaysian 45 VP, O&M Business Unit - Member of Royal International Naval Architecture since 2008 - Registered professional engineer (electrical) in the Board of Engineers Malaysia since 2008 - Bachelor of Science in Engineering in 2004 - Member of JIM Vibration Committee FUTURE PLAN AND STRATEGIES The future plans and strategies of the Group are as follows: 1. Operate & Maintain (O&M) of small hydropower plants - In Feb 16, secured a contract to operate and maintain three small hydropower plants for 21 years in Kota Marudu, Sabah. - The contract is expected to commence upon the completion of construction by the end of 2017. 2. Upgrading of existing operational facilities in Malaysia and UAE 3. Establish a new MRO and IRM centre in Sarawak, Malaysia - To further expand business operations in Sabah, Sarawak and Labuan 4. Development of small gas power plants and water utilities in Indonesia - Entered agreement to lease out a small gas power plant on Ambon Island, Indonesia; - entered MOU involving the development of small gas power plants and water utilities in Indonesia 5. Business expansion through investment and acquisition - targeting companies in U.S. and Europe with technologies and skills set that are complementary to its O&M services. 6. Development of industrial park in Sarawak - develop and own an industrial park in Sarawak; currently in the midst of negotiating with the authorities for a suitable site 5

UTILISATION OF PROCEEDS The total gross proceeds from the IPO of RM407.1mil will be utilised in the following manner:- No. Details of utilisation of proceeds Estimated timeframe RM mil % 1. Expansion of business and operational facilities Within 12-36 months 300.0 73.7 2. Working capital Within 36 months 29.3 7.2 3. Repayment of bank borrowings/financing Within 12 months 60.0 14.7 4. Estimated listing expenses Within 6 months 17.8 4.4 Total gross proceeds 407.1 100.0 The bulk of IPO proceed is allocated for expansion of business and operational facilities with details as follows: No. Details of business and operational facilities expansion Estimated timeframe RM mil % Expansion of operational facilities 135.0 1. Establish of new maintenance, repair and overhaul (MRO) and inspection, repair and maintenance (IRM) centre in Sarawak Within 24 months 70.0 23.3 2. Acquire a corporate office building in Selangor Within 12 months 30.0 10.0 3. Establish a new fabrication facility to support EPCC works and IRM services in Johor Within 12 months 20.0 6.7 4. Upgrade of existing operational facilities in Malaysia and UAE Within 12 months 15.0 5.0 Business expansion 165.0 5. Business expansion through investment and acquisition Within 36 months 95.0 31.7 6. Development of small gas power plants and water utilities in Indonesia Within 36 months 70.0 23.3 Total gross proceeds 300.0 100.0 COMPETITIVE ADVANTAGES & KEY STRENGTHS Some of the competitive advantages and key strengths set out as follows: 1. Rank 3 rd in Malaysia for providing MRO of rotating equipment to the O&G industry with 23 years track record; 2. Growing and profitable company, backed by prudent financial track record; 3. Petronas-licensed company in Malaysia; 4. Strong records in Health, Safety and Environment (HSE); 5. Highly experienced management team 6

OUTLOOK & PROSPECTS According to IMR s report, the prospects and outlook of the asset maintenance industry for oil and gas is closely tied to the overall prospect of the oil and gas and power generation industries, which are dependent on the following factors: 1. General economic growth Global and Malaysia s real GDP growth is expected to fluctuate between 3.1%-3.7% and 4%-5.0% between 2016 and 2020. 2. Population Growth Global and Malaysia s population is forecasted at CAGR of 1.1% and 1.7% respectively between 2016-2020. 3. Market price of crude oil and natural gas Oil price outlook gradually recover with production cut led by Saudi Arabia 4. Investment in O&G industry investment in newly-built facilities would create new opportunities for operators to provide maintenance services 5. Forecasted power generating capacity Global, Middle East and Asia Pacific total power generating capacity is forecasted to grow at CAGR 1.6%, 2.0% and 2.5% respectively for the period between 2016-2020. 6. Aging O&G and power generation assets aging assets generally require more maintenance DIVIDEND POLICY Serba Dinamik intends to distribute dividend of at least 30.0% of its annual audited PAT to shareholders of the Group. RISK FACTORS Major risks relating to the Group are as follows: 1. Global economic slowdown; 2. Fluctuation in O&G prices; 3. Risks arising from foreign exchange fluctuations; 4. Interest rate risk from borrowings; 5. Change in government policies / regulatory environment. VALUATION/RECOMMENDATION At retail price of RM1.50 per IPO Share, Serba Dinamik is valued at 12.8x P/E based on EPS of FYE 31 Dec 2015, and represents P/B of 2.0x based on proforma consolidated net tangible assets (NTA) per share of approximately RM0.76 per share upon listing and utilisation of proceeds. We have a subscribe recommendation with a target price of RM1.80 derived based on 10.0x P/E of our projected EPS of 18.03sen for FYE 31 Dec 2017. The target price represents a potential return of 20.0% over the IPO price with a potential dividend yield of 2.8%. 7

FINANCIAL INFORMATION FYE 31 Dec (RM'mil) Financial Data & Ratios Income Statement 2013A 2014A 2015A 2016E 2017E Growth (%) 2013A 2014A 2015A 2016E 2017E Revenue 536.2 755.8 1,402.9 1,823.5 2,188.1 Revenue - 41% 86% 30% 20% EBITDA 79.2 100.8 212.6 312.2 397.1 EBITDA - 27% 111% 47% 27% Operating Profit 69.4 85.8 182.1 237.0 284.5 Operating Profit - 24% 112% 30% 20% PBT 65.8 67.7 159.6 218.8 262.6 PBT - 3% 136% 37% 20% PAT 61.6 67.4 156.6 202.1 240.5 Net Profit - 9% 132% 29% 19% Interest Exp 3.4 18.1 25.1 42.0 42.0 Taxation 4.2 0.3 3.0 16.7 22.1 Profitability (%) EPS (Sen) 4.6 5.0 11.7 15.1 18.0 EBITDA Margin 15% 13% 15% 17% 18% Operating Margin 13% 11% 13% 13% 13% Balance Sheet PBT Margin 12% 9% 11% 12% 12% NTA/Share (RM) - - 0.76 0.92 1.10 PAT Margin 11% 9% 11% 11% 11% Gearing Rat io (t imes - - 0.56 0.45 0.36 Effective Tax Rat 6% 0% 2% 8% 8% 8

Recommendation Framework Subscribe Neutral Do Not Subscribe The stock s total return is expected to be +15% or better over the next 12 months. The stock s total return is expected to be within +/-15% over the next 12 months. The stock s total return is expected to be -15% or worse over the next 12 months. DISCLAIMER All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or individuals connected with it may have used research material before publication and may have positions in or may be materially interested in any stocks in the markets mentioned. For any enquiries, please contact us: L-7-2, No.2, Jalan Solaris, Solaris Mont Kiara, 50480, Kuala Lumpur Tel: 603-6203 7227 Email: mercurykl@mersec.com.my