PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 24 Jan 2020, 2:52 PM


Serba Dinamik Holdings Berhad - Bags 7 New Jobs

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Serba Dinamik (Serba) announced its second batch of contract awards this year comprising six in the Operations and Maintenance (O&M) segment and one in the Engineering, Procurement, Construction and Commissioning (EPCC) segment. We applaud this news as it affirms our positive stance on the stock and its earnings outlook moving forward. Inclusive of these contracts, we estimate Serba’s outstanding orderbook is now at a strong RM8.7bn, ensuring earnings visibility over the next 3 years. We expect there will be more contracts to come through the course of the year in line with our job replenishment target of RM2.5bn. No change to our earnings forecasts and TP of RM5.38 based on a ~14x multiple to FY20 EPS of 38.4sen. We reiterate our Outperform rating on Serba as earnings outlook is expected to remain steady, underpinned by its long-term recurring earnings from its O&M segment. Serba is preferred amongst oil and gas players within our universe given its defensive business nature with stable earnings streams.

  • The contracts. Five out of the six O&M contracts plus one EPCC contract are locally-based, though with no specific value being disclosed as the work orders will be awarded at the discretion of the respective clients based on their activity schedules and rates throughout the duration of the contracts. Nevertheless, our channel checks suggest that the value for all these six contracts are in the range of RM250m. Meanwhile, the remaining one contract for the O&M segment is from Qatar and is valued at c.RM250.6m (USD60m). The contracts’ lifespans are about 2 - 3 years to end in 2022. Details of projects as per table 1.
  • Orderbook strong at RM8.7bn. These projects represent the second set of job wins in FY19, with more expected to come throughout the course of this year. Management is targeting to achieve RM10bn balance orderbook by end of FY19. Inclusive of these, we estimate the Group’s YTD’s win would be around RM1.5bn, pushing its balance orderbook in hand to a solid c.RM8.7bn to keep the Group busy over the next 3 years.
  • Earnings forecast. Our earnings estimate is maintained as this makes up part of our FY19 orderbook replenishment assumptions of RM2.5bn (vs. YTD wins of c.RM1.5bn) – 8.7% higher than last years’ target of RM2.3bn. With some of works having started as early as in March and April 2019, these projects are expected to contribute positively to the Group’s FY19 numbers and beyond. These works are expected to yield about 16% - 20% at gross level (RM80m – RM100m) to be spread over 3 years.

Source: PublicInvest Research - 19 Jun 2019

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