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Author: PublicInvest   |   Latest post: Fri, 6 Dec 2019, 9:18 AM

 

SERBA DINAMIK HOLDINGS BERHAD - 5 Jobs In The Bag

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Serba Dinamik (Serba) announced another batch of contract awards this year comprising three in the Operations and Maintenance (O&M) segment and two in the Engineering, Procurement, Construction and Commissioning (EPCC) segment within three countries – Malaysia, Turkmenistan and Oman. We applaud this development as we believe it accomplishes management’s target of an RM10bn orderbook by year-end. It also affirms our positive stance on the stock and its earnings outlook moving forward. While these job wins already exceed our annual orderbook replenishment forecast, we reckon the contribution to FY19’s earnings are negligible nonetheless. As such, we maintain our FY19- 21 earnings estimates. We reiterate our Outperform rating on Serba with a TP of RM5.38 based on a ~14x multiple to FY20 EPS of 38.4sen. Post completion of its corporate exercises however, FY20/21 EPS will be lowered to 18.3/20.8sen respectively before warrant conversion resulting in our TP being revised to RM2.56 (RM1.99 on fully diluted basis), though its share price will also be adjusted accordingly.

  • The contracts. The two international-based contracts comprising of one O&M and one EPCC contract are valued cumulatively at c. RM682.8m. Meanwhile, the remaining two O&M and one EPCC contract are local projects with no specific value disclosed as the work orders will be awarded at the discretion of the clients based on the activity schedules and rates throughout the duration of the contracts. Nevertheless, our channel checks suggest that the value for the EPCC contract plus the O&M for SEA Hibiscus is around RM100m. The contracts’ lifespans are about 3 years to end in 2022. Details of projects as per Table 1.
  • Awarded Master Service Agreement (MSA) by Petronas. Serba also has been awarded an O&M contract by PETRONAS for the appointment of Panel Contractors for the Provision of Mechanical Rotating Equipment Services and Parts for Petronas Group of Companies and Petroleum Arrangement Contractors. While there is no further information provided about this contract, we gather that this 3+1-year contract is a Master Service Agreement in relation to plant maintenance for the national oil firm’s plants group-wide. There are about 39 plants to be maintained by few contractors under this agreement, offering an estimated RM5bn worth of work orders.
  • Order book jumps to RM9.7bn. Excluding the MSA, Serba has secured around RM3.3bn worth of projects YTD, pushing its outstanding orderbook to RM9.7bn. With that, we deem management’s target of an RM10bn order book by year-end as accomplished. We maintain our FY19-21 earnings forecast although these wins surpass our FY19 replenishment assumption by c. 30%, as we reckon contributions to FY19 earnings are negligible.

Source: PublicInvest Research - 17 Oct 2019

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