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Author: PublicInvest   |   Latest post: Fri, 13 Dec 2019, 10:07 AM

 

Serba Dinamik Holdings Berhad - Commendable Start

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Serba’s 1QFY19 net profit rose 21.1% YoY to RM112.2m on the back of a 34.7% rise in revenue to RM984.4m. The healthy numbers were supported by a 35.3% and 17.9% O&M and EPCC revenue growth. Earnings are in-line with our and consensus expectations, meeting 22.8% and 23.9% of full-year estimates respectively. The Group’s profit margins remain stable at 12.6% and 11.4% at pre-tax and net profit levels. Earnings estimates are left unchanged, Our target price is raised to RM5.38 (RM4.69 previously) however as we roll-over our valuation to FY20. 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. An interim dividend of 2.3sen was declared this quarter.

  • Strong YoY growth, though QoQ earnings flat. Revenue and net earnings in 1QFY19 improved by 34.7% and 21.1% YoY though flat QoQ at 0.7% and 2.6% respectively. Strong YoY numbers were mainly attributed to a pick-up in oil and gas activities particularly from its O&M segment with revenue and EBIT growth of 35.3% and 37.8% YoY. Notable pick-up was seen in maintenance, repair and overhaul (MRO) activities under the O&M segment particularly in the Malaysia, Indonesia, and Middle East region such as Qatar, UAE and Bahrain. The Group’s EPCC arm also showed better numbers with revenue and EBIT jumping by 17.9% and 13.3% YoY. Additional contribution was derived from its hydro-power plant projects in Laos which marked the first contribution of RM7.7m from the country.
  • Maintain Outperform on stable earnings outlook. Earnings outlook for FY19 is expected to remain attractive backed by its strong outstanding order book in hand of RM8.3bn (O&M: RM6.1bn, EPCC: RM2.2bn) translating to c. 2.5x FY18 revenue. The continuation of strong revenue growth this year will be, 1) backed by growing demand in the Middle East and Southeast Asia, particularly UAE as well as Qatar, and 2) underpinned by the Group’s operation and maintenance services, which account for 89% of the group’s FY18 revenue. We also understand that its tender book remains strong at RM15.8bn (approx. O&M: RM9.5bn, EPCC: RM6.3bn) with overseas projects comprising about 65% for O&M and 30% for EPCC. We expect it will secure about RM2.5bn in FY19 versus RM2.3bn last year, on improved oil and gas activities globally. YTD, Serba has secured a total of RM448.1m worth of projects. Management has targeted to achieve RM10bn balance orderbook by end of FY19, against RM7.5bn at the end of last year.

Source: PublicInvest Research - 30 May 2019

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