Serba Dinamik (Serba) announced another big win for the year, securing a USD350m or ~RM1.5bn construction project in Abu Dhabi from Future Digital Data Systems L.L.C (FDDS). With this contract, Serba’s YTD wins jumps to RM10.9bn, lifting the current order book to an all-time high of RM18.5bn. We are positive on this development as it enables the Group to strengthen its EPCC capabilities the in ICT segment. We make no changes to our earnings forecasts however as profit recognition from this new project is only expected to be more meaningful from FY21 onwards. That said, Serba’s order book has exceeded our RM9bn expectation for the year. Serba is slated to announce its 2QFY20 results tentatively on 25th August, which we expect to see earnings relatively flat QoQ given the Movement Control Order (MCO) impact that limited work progress. We affirm our Outperform rating on Serba nonetheless, with TP of RM2.45 based on unchanged PER of 12.8x over FY21 EPS.

• Another win. The contract is to undertake the construction-related works on a data centre and related facilities, infrastructure, and landscaping. It forms part of FDDS’s master plan for a for a total information technology (IT) with capacity of 20MW. The project that is worth ~RM1.5bn will be built in 4 phases over a 4-year period, starting September 2020.
• YTD new wins total RM10.9bn. This represents the fourth round of contract awards for the year and the second big win (singular contract) after the large RM7.7bn contract win announced earlier, also in Abu Dhabi, With this award, Serba’s YTD wins jump to RM10.9bn, lifting the current order book to an all-time high of RM18.5bn. This project is estimated to yield 14% - 16% profit margin at the gross level.
• Year-end target accomplished. Based on our assumption of a ~22% burn rate (RM3.9bn) of the outstanding orderbook in the remaining 3 quarters, management’s target of an RM15bn balance orderbook at the end of 2020 appears to have been accomplished. However, we do not rule out the Group securing even more than what it has now given its strong presence globally coupled with its good relationship with clients and commendable track record.

Source: PublicInvest Research - 7 Aug 2020