Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with an unchanged fair value of RM2.20/share, based on a 30% discount to our diluted sum-of-parts valuation of RM3.15/share.

• We are positive that Serba will be able to secure fresh jobs during an oil & gas cyclical downturn. Its 75%-owned PT Serba Dinamik Indonesia and its wholly owned units have secured scopes of work potentially worth up to RM760mil as follows:

• US$127mil (RM544mil) contracts with specific value from 2 clients with durations of 5 to 7 years involving the RM14mil procurement of Hitec Powerpro equipment for PT Polytama Propindo in Indonesia and RM530mil implementation of digital microlending and health platforms for ZCOM Systems Ltd in Zambia.

• For contracts without confirmed value, the group bagged 7 operation and maintenance jobs in Malaysia with durations from 1 year to 5 years covering the following: i) design, supply and deliver microturbine generator package for Sarawak Shell from March 2020 to Dec 2021; ii) providing Capstone microturbine vendor support services to Sea Hibiscus over 5 years with an option for 1-year extension as well as to Sarawak Shell over 5 years; iii) providing system upgrades for Sejingkat Power Corp over 1 year; iv) inspecting and servicing boiler and unfired pressure vessels of SEB Power for certificate of fitness over 1 year; v) providing personal protective equipment and services for MDC Oil & Gas (SK320) Ltd over 4 years with an annual extension option; and vi) maintenance of rotating machinery for Pengerang Refining Company over 4 years. While the announcement did not provide a specific value on these O&M jobs, which are on a call-out basis, we understand that these could potentially reach RM216mil.

• These confirmed fresh contracts will enlarge Serba’s already huge order book by 3% to RM17.5bil (3.4x FY20F revenue), of which 44% stem from the massive US$1.8bil (RM7.7bil) Innovation Hub property development project in Abu Dhabi. This already exceeds management’s FY20F year-end target of RM15bil.

• As some of these new jobs will be undertaken over 4–5 years, we maintain Serba’s FY20F–FY22F earnings for now pending the announcement of fresh contracts.

• Given the unflagging accretion in order book, Serba’s recurring income profile together with mitigated balance sheet risks translate to an unjustified FY21F PE of only 9x vs. its closest peer Dialog Group’s over 30x.

Source: AmInvest Research - 1 Jul 2020