Investment Highlights

• We maintain BUY on Serba Dinamik Holdings (Serba) with unchanged forecasts and fair value of RM2.40/share, based on a 20% discount to our diluted sum-of-parts (SOP) valuation of RM2.99/share (Exhibit 2), which reflects a neutral ESG rating of 3 stars. This implies an FY21F PE of 14x vs. Dialog’s 28x.

• Serba together with its 75%-owned Indonesian subsidiary and India-based associate have secured 2 operation and maintenance (O&M) jobs and 3 ICT contracts which have a specific value of US$100mil (RM409mil).

• The O&M projects involve the installation together with a 15- year maintenance of a turbine generator for PT Pilar Bahtera Energi in Indonesia and a 19-month rotary service contract for Malaysia LNG Bhd.

• The group’s 49%-owned Serba2C Pvt Ltd secured the Indiabased ICT jobs comprising the installation of CCTV surveillance within 6 months and projects involving adaptive traffic management and city security systems over 6–7 years.

• Including the contracts worth RM548mil (US$136mil) announced on 18 January this year, the group has secured RM957mil jobs with a specific value in 1Q2021, raising the group’s outstanding order book slightly by 1% QoQ to RM18.9bil (2.9x FY21 revenue).

• Geographically, 57% of the outstanding order book stems from the Middle East, 25% from Malaysia, 10% from Central & South Asia and 4% from Africa. Oil and gas projects remain the bread and butter of the group, accounting for 60% of the order book (Exhibit 1).

• O&M projects have risen slightly to 42% of current group order book from 41% in 4Q20 with EPCC comprising the larger 47% due to the huge UAE ICT-related construction job. Nevertheless, a high proportion of the O&M jobs does not have specific values as the contracts are on a “call-out” basis. Hence, the O&M segment is still the largest revenue contributor, accounting for 82% of 4QFY20 revenue.

• With management aiming for FY21F order book growth of 10%– 20%, we expect the group’s revenue growth prospects to be further supported by plans to lease parts of the 170-acre Teluk Ramunia yard to third parties while angling for fresh jobs in decommissioning, petrochemicals and renewable sectors.

• The group’s private placement of 337mil shares at RM1.51/share in January this year is expected to cut net gearing to drop to 69% by from 95% as at 31 Dec 2020. This improved financial flexibility together with good earnings visibility from recurring O&M operations translate to an unjustified FY21F PE of only 11x vs. its closest peer Dialog Group’s 28x.

Source: AmInvest Research - 9 Mar 2021