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Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Fri, 20 Sep 2019, 11:31 AM

 

Serba Dinamik Holdings - Another Record Quarter in 2Q19

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SERBADK posted yet another record quarter in 2Q19, which was well expected, led by higher activities from both core O&M and EPCC segments. Expect further contract wins moving forward as the company targets its order-book to reach RM10b by year-end, from RM9b currently with YTD wins of RM2.6b. Reiterate OUTPERFORM and TP of RM5.25, given its earnings delivery while new contract wins will serve as further catalysts.

Within expectations. SERBADK posted yet another record quarter with 2Q19 PATAMI of RM130.4m. This brings 1H19 cumulative PATAMI to RM242.6m, coming in within expectations at 53% and 51% of our and consensus full-year forecasts, respectively. Announced dividend of 2.7 sen per share (YTD 5.0 sen) is also within expectations.

Another record quarter. 2Q19 PATAMI jumped 27% YoY, thanks to: (i) surge in EPCC profit (+73%) due to its chlor-alkali plant in Tanzania, (ii) higher O&M activities (+34%) in Malaysia, Indonesia and the Middle East, and (iii) higher IT-related services (recorded in “others” segment”) from Qatar and India. Sequentially, 2Q19 PATAMI surged 16% QoQ, similarly thanks to: (i) higher EPCC (+28%) from jobs in Tanzania and Malaysia, (ii) mild climb in O&M (+7%) due to increased works in Malaysia and the Middle East, coupled with (iii) greater IT-related services. Cumulatively, 1H19 PATAMI also leapt 24%, due to similar aforementioned reasons, from stronger O&M (+36%), EPCC (+41%) and increase in IT-related services.

Further contract wins expected. Moving forward, we expect further contract wins throughout the year as the company targets an end-2019 order-book of RM10b, from the current RM9b with YTD wins of ~RM2.6b, providing 2-3 years of earnings’ visibility. While Malaysia and the Middle East still remain as the company’s stronghold markets, it is also eyeing further expansion opportunities in the central Asia region, as well as expansions in its IT-related services.

Reiterate OUTPERFORM, with unchanged TP of RM5.25 pegged to 15x PER on FY20E – which is around +2SD from its 2-year mean valuations. No changes were made to our FY19-20E numbers postresults, implying earnings growth of 17%/13%. We continue to like SERBADK for having one of the best earnings delivery track records within the oil and gas space, coupled with its outstanding management and best-in-class ROE against sector peers. Further contract wins and continued earnings delivery would act as catalysts moving forward.

Risks to our call include: (i) lower-than-expected order-book replenishment, (ii) weaker-than-expected margins, and (iii) geopolitical unrest in the Middle East affecting oil and gas-related activities.

Source: Kenanga Research - 23 Aug 2019

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Chart Stock Name Last Change Volume 
SERBADK 4.37 +0.01 (0.23%) 3,038,800 

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