Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with unchanged forecasts and sum-of-parts-based (SOP) fair value of RM6.50/share, which implies an FY19F PE of 20x — 33% below Dialog Group’s 30x, the company’s closest peer in Malaysia.

• Serba secured 6 contracts to undertake operation and maintenance (O&M) services together with a job to provide engineering, procurement, construction and commissioning (EPCC) work for Pavilion Qatar Engineering Co WLL, Petronas, Malaysia Refining Company, Malaysia LNG, Kebabangan Petroleum Operating Company and PC Myanmar (Hong Kong) Ltd.

• As the O&M contracts are on a “call out” basis with no specific value, the group was only able to provide the estimated value of US$60mil (RM251mil) for the contract to provide repair, overhaul and maintenance of pumps, compressors, gearboxes and other rotating equipment for Pavilion Qatar Engineering Co WLL.

• Based on the value of contracts which Serba has estimated to have secured since the beginning of this year, the RM699mil which have been announced to date account for 18% of the group’s FY19F revenue and raise its outstanding order book by 5% from RM8.3bil as at 1QFY19 to RM8.7bil currently, of which O&M accounts for 74% and EPCC 26%.

• However, including the multiple O&M jobs which management has not been able to provide any guidance on estimated values, we believe that Serba remains on track to reach management’s outstanding order book target of RM10bil by end-FY19F.

• This implies an impressive order book growth of 33% YoY and a potential FY19F revenue growth of 18%–20%, which is above our conservative assumption of 16%. Management expects the continuation of strong revenue growth this year driven by growing demand in the Middle East and Southeast Asia, spearheaded by the UAE and Qatar.

• Our only concern lies in the rising net gearing of 0.5x as at 1QFY19 from 0.3x in 1QFY18 due to the group’s expansion programme, which management affirms does not require any equity-raising exercise.

• We remain positive on Serba’s O&M business model, which is still actively expanding its long-term recurring earnings profile by strategically leveraging its EPCC and ownership platform, similar to Dialog. Serba is currently trading at a grossly undervalued FY19F PE of 13x vs. over 30x for Dialog – Serba’s closest peer in the oil and gas sector.

Source: AmInvest Research - 19 Jun 2019