Serba Dinamik Holdings Berhad - Keeping The Momentum

Date: 01/07/2020

Source  :  PUBLIC BANK
Stock  :  SERBADK       Price Target  :  2.49      |      Price Call  :  BUY
        Last Price  :  1.65      |      Upside/Downside  :  +0.84 (50.91%)

Serba Dinamik (Serba) announced a string of new contracts, comprising seven in the O&M segment, one in EPCC and two from ICT-related contracts in three countries – Malaysia, Indonesia and Zambia worth RM760m. We are positive on these new wins as it demonstrates the Group’s ability in securing contracts regardless of operating dynamics, good or bad. With these new wins, Serba has successfully replenished a total of RM9.4bn to its orderbook this year, maintaining its outstanding orderbook in hand of RM17.5bn. This affirms our positive stance on the stock and its earnings outlook moving forward. We maintain our FY20-22 earnings estimates, having imputed this contract into our replenishment assumptions. TP is retained at RM2.49 based on PE multiple of ~13x over FY21 EPS of 19.5sen. Our Outperform rating on Serba is affirmed given i) its defensive business nature especially during the downturn, ii) delivery of 6-year earnings growth (FY14-FY20F) CAGR of c.50%, and iii) stability in its future earnings profile underpinned by its long-term recurring earnings.

  • The contracts. The three international-based contracts comprising of one Engineering, Procurement, Construction and Commissioning (EPCC) and two for Information, Communication & Technology (ICT) in Indonesia and Zambia are valued cumulatively at ~RM543.5m. Meanwhile, the balance seven Operations & Maintenance (O&M) works are local projects with no specific value disclosed as the work orders will be based on a call-out basis. Nevertheless, our channel checks suggest that the estimated work orders could be worth c. RM216.5m. The contracts’ lifespan is between 1 and 7 years, with completion up to 2027. These projects are estimated to yield 14%-16% profit margin at the gross level. Project details are in Table 2.
  • YTD new wins total RM9.4bn. This represents the third round of contract awards for this year following the Group’s single largest project amounting to RM7.7bn in Abu Dhabi, bringing YTD wins to RM9.4bn. With the current ones, Serba’s outstanding orderbook remains strong at RM17.5bn, translating to c. 3.9x of FY20 topline. While orderbook is currently ahead of management’s target of RM15bn by end-2020, we foresee it will still need to top-up ~RM1.4bn worth of projects assuming a burn rate of around 22% or RM3.9bn of the outstanding orderbook in the remaining 3 quarters. We see no issues with this considering its strong presence globally, coupled with its good relationship with clients and commendable track record. The need to replenish its orderbook is also important for Serba in order to utilize the recent acquisition of Teluk Ramunia yard. Projects in the pipeline may include the EPCC for petrochemical-based projects locally and overseas as well as O&M segment in Malaysia, Middle East, Africa and Mexico.

Source: PublicInvest Research - 1 Jul 2020

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