Company Update

• We met with Serba Dinamik for an update on the group’s current operations and future plans and came away feeling re-assured of the group’s direction moving into 2020. Serba Dinamik aims to grow their existing orderbook at currently approximately RM10.0 bln into RM15.0 bln by end-2020.

• This will be back by the tenderbook of approximately RM16.0 bln including renewal of existing contracts, comprising 45% local contracts, while the remainder 55% from overseas.

• In the meantime Serba Dinamik will focus on jobs from overseas, particularly from Middle East and Central Asia. We opine that the Middle East jobs may gain traction as United Arab Emrates (UAE) has recently approved new foreign investment that would allow foreigners to own up to 100% in 122 UAE economic activities (previously capped at 49%). Elsewhere, the Qatar government has outlined 210.5 bln Qatari riyal (US$58.0 bln) for infrastructure projects to support the 2022 World Cup, of which Serba Dinamik can tap into.

• Back home, the Bintulu Integrated Energy Service Hub (BIEH) that sits on 28-ac. land size will support the oil & gas, petrochemical and power generation industries is close to 90% completion. At the same time, the Pengerang Eco-Industrial Park and Pengerang International Commercial Centre in Johor, Malaysia is on track for completion by end-2020. Upon completion, this will provide services including maintenance, repair and overhaul (MRO) and inspection, repair and maintenance (IRM) to support the downstream oil, gas and petrochemical, and power generation industries under the US$27.0 bln RAPID project.

Valuation and Recommendation

We continue to like Serba Dinamik as it is one of the largest oil & gas service equipment providers in Malaysia, backed by its sturdy orderbook comprising of dozens of jobs from local and overseas that will provide long-term earnings visibility. In the interim, we do note that the corporate proposals that entails (i) share split of every two existing ordinary shares into three shares, (ii) bonus issue on a basis of two shares for every five subdivided shares and free warrants on the basis of two free warrants for every five subdivided shares. Therefore, we maintain our BUY recommendation on Serba Dinamik with an unchanged target price of RM2.63. We arrive at our target price by ascribing a PER of 15.0x to its’ forecast 2020 EPS of 17.5 sen. The ascribed target PER is similar to mid-large cap oil & gas peers’ average of 16.0x. We also introduced our 2021 forecast where we expect both top and bottomline to grow at high single digit to record high at RM5.13 bln (+7.3% Y.o.Y) and RM586.3 mln (+8.5% Y.o.Y), backed by the execution of rising orderbook, coupled with the group’s expansion plans. Risks to our recommendation include failure to secure the targeted orderbook replenishment of RM3.50 bln for 2020 and 2021 respectively. A firmer Ringgit against the U.S. Dollar could affect the group’s bottom line as a recovery in the local currency against the Greenback will have a negative impact on the group’s earnings and vice versa.

Source: Mplus Research - 19 Dec 2019