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Author: MalaccaSecurities   |   Latest post: Fri, 5 Mar 2021, 9:40 AM

 

Serba Dinamik Holdings Berhad - A record breaking year ahead

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Summary

  • Serba Dinamik Holdings Bhd (Serba Dinamik) kick started 2021 on a buoyant note following another batch of contract wins; comprising of (i) nine operations & maintenance (O&M) contracts in Malaysia and Indonesia, (ii) one engineering, procurement, construction and commissioning (EPCC) contract in Malaysia and (iii) one information, communication & technology (ICT) contracts in India. The recent batch of contracts will ensure long-term sustainable income till 2035.
     
  • With the exclusion of the O&M and EPCC contracts located at Malaysia due to their nature of work scopes being call-out basis, the remainder eight O&M and ICT contracts secured has a combined value of approximately US$135.8m (c.RM548.2m). The move has sustained the outstanding orderbook at approximately RM18.7bn (relatively unchanged since early December 2020), representing 4.1x orderbook cover ratio against FY19 revenue of RM4.5bn.
     
  • Following the latest win, we remain upbeat on Serba Dinamik’s prospects, riding on the recovery in the oil & gas industry with Brent oil prices hovering above US$50/bbl. We reckon that the recovery will provide room for oil & gas players to manoeuver their CAPEX and OPEX. Already, crude oil rigs in US have risen close to 300 in midJanuary 2021 (from slightly below 200 in October 2020).
     
  • Approximately 88% of the outstanding orderbook remains within the O&M and EPCC segment, whilst the remainder 12% makes up from the ICT segment. Hence, we believe that the O&M and EPCC segments will continue to anchor the group’s growth over the foreseeable future, contributing >80% of total revenue in FY21.
     
  • We note that the five power-related O&M contracts with Super Ultima demonstrated Serba Dinamik’s capability to secure non-oil & gas related jobs. Moving forward, Serba Dinamik remained committed to divert from the oil & gas industry overtime.

Valuation & Recommendation

  • Given that the contract wins are within our forecast, we made no changes to our earnings estimates. We maintain our BUY recommendation on Serba Dinamik with an unchanged target price RM2.41. Our target price is derived by ascribing an unchanged target PER of 13.0x to its FY21f EPS of 18.5 sen.
     
  • We continue to like Serba Dinamik as one of the key players in the oil & gas industry, backed by its sturdy orderbook comprising of dozens of jobs from local and overseas that will provide long-term earnings visibility, coupled with the group’s ongoing effort diversification into businesses that generates recurring income.
     
  • Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM17.0bn by end-FY21f. Meanwhile, a firmer ringgit against the USD could affect the group’s bottom line as it will have a negative impact on the group’s earnings and vice versa with majority of existing orderbook derived from overseas.

Source: Mplus Research - 19 Jan 2021

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