Serba Dinamik Holding Berhad - Earnings Growth Intact

Date: 24/11/2020

Source  :  PUBLIC BANK
Stock  :  SERBADK       Price Target  :  2.45      |      Price Call  :  BUY
        Last Price  :  1.63      |      Upside/Downside  :  +0.82 (50.31%)

Serba Dinamik (Serba) reported stronger net profit of RM148m (+30.8% YoY) in 3QFY20 on the back of solid revenue of RM1.5bn (+41.8% YoY). The performance was attributed to stronger contribution from the Group’s O&M division with top line and gross profit growing at 34.1% and 37.6% YoY respectively. Robust activities were seen in MRO activity notably in the Middle East region such as Qatar, Oman and Bahrain. For the cumulative 9MFY20, the Group recorded a surge of 32.5% and 20.7% YTD in revenue and net profit to RM4.2bn and RM429.6m respectively. Overall, the 9MFY20 earnings were within our and consensus expectations, meeting 77.2% and 74.2% of full year projections. We keep our FY20F-22F forecasts unchanged in anticipation of the earnings remaining stable on the back of its strong outstanding orderbook of c. RM18.5bn. We reiterate our Outperform rating on Serba with an unchanged TP of RM2.45 based on an unchanged ~13x multiple over FY21 EPS.

  • Robust O&M activities. This 3QFY20 is the Group’s best sequential performance for the third quarter since 2017, with positive QoQ earnings growth seen (+0.1% QoQ to RM148m) as opposed to negative QoQ growth reported historically. The achievement is notable and underpins its steady growth momentum. This current performance is attributed to robust activities in operation and maintenance (O&M) segment particularly in maintenance, repair and overhaul (MRO) activities notably in the Middle East region such as Qatar, Oman and Bahrain. The segment reported 3.8% and 1.4% QoQ growth in 3QFY20 revenue and gross profit.
  • …mitigating lower EPCC contribution. Engineering, procurement, construction and commissioning (EPCC) division reported negative growth with revenue and gross profit sliding 33.2% and 34.1% QoQ respectively. Lower recognition from EPCC is attributed to lesser activity in Tanzania (- 77.5% QoQ) and in UAE (46.6% QoQ). Significant decline has also been seen in Laos (-21.6% QoQ) due to bad weather. Profit margin remains stable at 15% at gross level nonetheless.
  • 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.
  • Dividend. The Group declared third interim single tier dividend of 1.35sen, making up total dividend declared thus far this year to 3.9sen. This is in line with our full year target of 5sen.

Source: PublicInvest Research - 24 Nov 2020

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