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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 11 Dec 2019, 9:46 AM

 

Serba Dinamik Holdings Berhad - Stronger On All Fronts

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Serba Dinamik’s (Serba) 1HFY19 top and bottom-line numbers were within our expectations, meeting 53.8% and 49.3% of our full year projections. 2QFY19 net profit rose 27% YoY to RM130.4m on the back of a 41.6% rise in revenue to RM1.1bn. For the cumulative 1HFY19, it recorded a surge of 38.3% and 24.4% YTD in revenue and net profit to RM2.1bn and RM242.6m respectively. The performance was attributed to the stronger contribution from all segments which saw growth of 33.4% in O&M, 48.6% in EPCC, and >100% in others which is mainly derived from IT-related services. A slight decrease in the Group’s profit margins to 12.6% and 11.4% (1HFY18: 13.4% and 12.7%) was seen at pre-tax and net profit levels though we reckon it is still manageable. 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. Our TP of RM5.38 (14x PER over FY20 EPS of 38.4sen) is unchanged. A second interim dividend of 2.7sen was declared this quarter.

  • Stronger on all fronts. Revenue and net earnings in 2QFY19 improved by 41.6% and 27% YoY and 15.7% and 16.3% QoQ respectively. It is mainly attributed to a pick-up in i) MRO activities particularly in Malaysia, Indonesia, and the Middle East region notably in Qatar, UAE and Bahrain, ii) EPCC activities from the Group’s chlor-alkali plant in Tanzania, and iii) others segment particularly from IT-related services (ie. customized solutions involving software developments in Qatar and India). 2QFY19 revenue for the Group’s O&M, EPCC, and others segments jumped by 31.7%, 85%, and >100% YoY.
  • Earnings outlook. For 3QFY19, we can expect slight weaker sequential earnings given the seasonally low activities during the quarter particularly in the Middle East region. However, it should pick-up in 4Q. Overall, earnings outlook for FY19 and beyond is expected to remain stable on the back of its outstanding order book in hand of RM9bn (O&M: RM6bn, EPCC: RM3bn), translating to c.2.7x of FY18’s O&M and EPCC revenue. Its tender book also remains at a strong c.RM15bn (approx. O&M: RM10bn, EPCC: RM5bn). YTD, Serba has secured a total of RM2.5bn worth of projects, achieving our annual replenishment target for FY19. Management has targeted to achieve RM10bn balance orderbook by end of FY19, against RM7.5bn at the end of last year which we think is highly achievable.
  • Dividends. Management declared second interim single tier dividend of 2.7sen/share, bringing the YTD dividend to 5sen. This is in line with our dividend projection of 10sen.

Source: PublicInvest Research - 23 Aug 2019

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