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Author: KV   |   Latest post: Thu, 26 Nov 2020, 3:46 PM

 

O&G sector making a comeback: SERBA DINAMIK BERHAD the Winner! (TP: RM2.70 by KENANGA)

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                                           Serba Dinamik Holdings Berhad – Oil and Gas Solution Provider

 

Usually, we will discuss about the target price at the end of the article. But, the target price given by the top IBs in Malaysia would definitely tell you that this stock is worth to be considered from an investment perspective.

 

Public Bank: Earnings Growth Intact -> Target Price: RM2.45

https://klse.i3investor.com/servlets/staticfile/408075.jsp

 

Malacca Securities: Growth Prospects Remain Intact -> Target Price: RM2.41

https://klse.i3investor.com/servlets/staticfile/408065.jsp

 

Kenanga Securities: Continues Strong Growth in 3QFY20 -> Target Price: RM2.70

https://klse.i3investor.com/servlets/staticfile/408064.jsp

 

Hong Leong Bank: Another Strong Quarter Despite Challenges -> Target Price: RM2.50

https://klse.i3investor.com/servlets/staticfile/408060.jsp

 

AmInvestment Bank: Steady earnings growth despite Covid-19 restriction -> Target Price: RM2.20

https://klse.i3investor.com/servlets/staticfile/408044.jsp

 

As we are discussing here today, Brent futures are climbing to a new high of $47.77 since March 2020 when the Covid-19 pandemic started. With the hope of having vaccine could be a reality by Q1’2021, many sectors are showing sign of recoveries and the players’ share price have been steadily rising. Now, it’s the turn of oil & gas sector where the share price of certain defensive players, such as Serba Dinamik, still being very much undervalued.

Despite the Covid 19 restrictions and overall negative sentiment on the oil & gas sector, Serba Dinamik has been continuing its steady growth and defensive earnings over the past three quarters. This is why Serba Dinamik looks very attractive compared to its peers.

EPS for the past three quarters has been averaging about 4.40 cents. Bear in mind that this earnings was posted despite a huge downfall in the price of oil. Now that the oil price is rising (in fact today's price is the highest since March 2020), future is looking bright for Serba Dinamik Holdings Berhad. As we look at its historic three years earnings, it is very impressive that Serba Dinamik has been maintaining its earnings despite the volatility that exist continuously in the O&G industry.

Year 2017 : Annualised EPS of 23.79 cents

Declared Annual Dividend of 6.80 cents

 

Year 2018: Annualised EPS of 26.62 cents

Declared Annual Dividend of 8 cents

 

Year 2019: Annualised EPS of 31.42 cents

Declared Annual Dividend of 7.50

And for Year 2020, the company has declared a dividend of 3.85 cents so far!

 

The company has also been engaged in share buy back and so far, it has bought 22M shares from the open market. The reason company usually engages in share buy back is if it feels that the current price is very much undervalued given its impressive earnings. This has been very true in the case of Serba Dinamik.

 

Looking at its peers valuation, it is very evident that market somehow overlooked the earning potential of Serba Dinamik. Its direct competitors whom have a similar business risk includes Dialog, Dayang, and Yinson.

Company

Serba Dinamik

Yinson Holdings

Dayang

Dialog

EPS Q1’2020

4.36 cents

5.88 cents

0.88 cents

2.68 cents

EPS Q2’2020

4.39 cents

4.27 cents

-0.09 cents

2.78 cents

EPS Q3’2020

4.39 cents

9.18 cents

3.40 cents

2.60 cents

EPS Q4’2020*

4.39 cents

9.18 cents

3.40 cents

2.60 cents

Annualised EPS

17.53 cents

28.51 cents

7.59 cents

10.66 cents

Current Price

RM1.70

RM5.16

RM1.02

RM3.70

Forward PE

9.69x

18.09x

13.43x

34.70x

*Assuming Q4’2020 is similar to Q3’2020 since the oil prices are recovering.

Serba Dinamik Holdings Berhad is trading at the cheapest forward PE among its direct competitors who have a similar business risk. Even at the lowest PE of 13.43x among the other three players, Serba Dinamik Holdings should easily be valued at RM2.35.

 

Future prospects of Serba Dinamik as per the IBs reports.

Public Bank

  • ·     All-time high orderbook. Serba’s current order book remains at a historical high of RM18.5bn. This translates to 4.1x of FY19’s revenue. Management’s target of an RM15bn balance orderbook at the end of 2020 appears to have been accomplished currently. However, we do not rule out the Group securing even more than what it has now given its strong presence globally and commendable track record. This is in spite of the current operating climate, with its business nature as a maintenance provider keeping the need for its services on-going.

Kenanga

  • ·     Resilience in strong earnings growth. Despite the Covid-19 pandemic, SERBADK continued to post yet another record earnings in 3QFY20, again proving its earnings base resiliency by continuing to deliver earnings growth. With the group’s order-book currently at a strong RM18.5b, we believe successful job execution and delivery is crucial for the group to be able to continue its unblemished earnings delivery track record. The group has also put in place ventures into offshore fabrication for the oil and gas sector, as well as expansions of its ICT segment, to continue fuelling growth over the longer term.

Hong Leong Bank

  • ·     While we believe that prospective job wins for Serba is expected to slow down in FY21, the trend of renewals for existing O&M contracts are still happening and we expect its O&M margins to be maintained going forward as there have been no contract renegotiations thus far. Its orderbook backlog of RM18.5bn would also be able to sustain its earnings growth in the next 2 years as the burn rate for the Block 7 and innovation hub contract is only expected to peak in FY22. Its Teluk Ramunia yard is also expected to improve its overall operational performance and margins as it would be able to internalize more contracts that were previously subbed out. It can also tender for more projects with its new yard in place. Its ICT segment is also expected to provide further growth for the Company as it continues to expand its footprint in Africa.

 

Conclusion: Serba Dinamik Holdings Berhad is trading at super cheap valuation with a minimum target price of RM2.40 and this is within the target price range given out by most IBs. Even at RM2.40, it will be trading at the cheapest PE multiple amongst its peers!

 

Disclaimer: This is not a buy call hence you should make an investment decision either by yourself or by contacting the authorised investment advisors.
 

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Labels: SERBADK

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Chart Stock Name Last Change Volume 
SERBADK 1.62 -0.03 (1.82%) 19,909,900 

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