Investment Highlights

• We maintain our BUY call on Serba Dinamik Holdings (Serba) with an unchanged fair value of RM2.20/share, based on a 25% discount to our diluted sum-of-parts (SOP) valuation of RM2.93/share (Exhibit 4).
   
• Serba started 2021 with the announcement of 11 new contracts with a firm value of US$136mil (RM548mil) to provide equipment and services to multiple clients over different periods from 3 months to 15 years.
   
• The contracts with firm values are all derived from overseas, comprising 8 operation & maintenance (O&M) projects in Indonesia and 1 ICT job in India. Five of the O&M jobs are from power supplier PT Pilar Bahtera Energi.
   
• The only contracts which are on a call-out basis with no firm value are based in Malaysia – 1 O&M from Petronas Chemicals Methanol S/B and 1 engineering, procurement, construction and commissioning job to provide a standby diesel generator for Sarawak Shell’s E8DR-A platform.
   
• Including the RM466mil jobs secured early last month, we believe Serba’s outstanding order book increased slightly by 1% QoQ at RM18.7bil.
   
• However, as previously highlighted, this locked-in future revenue has already exceeded the group’s earlier FY20F target of RM15bil (+50% YoY) which was set in the beginning of 2020.
   
• While management has yet to provide fresh guidance for the group’s year-end 2021 order book, we expect additional contracts later this year as Serba aims to lease parts of the 170-acre Teluk Ramunia yard, which cost RM320mil, to third parties while angling for fresh jobs in decommissioning, petrochemicals and renewable sectors.
   
• Meanwhile, we expect Serba’s 10% proposed private placement to reduce its 3QFY20 net gearing of 0.9x to a more comfortable 0.6x while diluting its FY21F EPS by 7% to 18 sen, assuming interest savings at 3%.
   
• Upon completion of the placement by 1QFY21, this still translates to an attractive pro forma PE of 11x, far below Dialog’s over 30x. Pending completion of the exercise, we maintain our FY21F–FY22F EPS for now.
   
• Hence, the group’s good earnings growth trajectory together with its recurring income profile translate to a compelling FY21F PE of only 8x vs. its closest peer Dialog Group’s over 30x.

Source: AmInvest Research - 19 Jan 2021