Summary

• Serba Dinamik Holdings Bhd has secured a total of ten contracts, comprising of (i) one engineering, procurement, construction and commissioning (EPCC) contract in Indonesia, (ii) two information, communication & technology (ICT) contracts in Zambia and (iii) seven operations & maintenance (O&M) contracts in Malaysia. The recent batch of contracts will provide sustainable income till July 2027.

• With the exclusion of O&M contracts due to their nature of work scopes being call out basis, the EPCC and ICT contracts secured has a combined value of approximately US$126.8m (c.RM543.5m), adding the group’s outstanding orderbook to approximately RM17.5bn, representing 3.8x orderbook-to-revenue cover ratio against FY19 revenue of RM4.5bn.

• The latest win is a testament of Serba Dinamik’s position as one of the major players in the oil & gas industry as the group makes a step closer towards achieving an internal targeted outstanding orderbook of RM15.0bn by end-FY20. Assuming a burn rate of approximately RM2.8bn in 2HFY20, the group only needs to secure approximately RM500.0m to the hit the internal target.

• Additionally the new wins for the ICT segment is also in line with the group’s effort to diversify their reliance on the oil & gas business segment. All in all, we are positive on the contract wins, with long term growth rate remains on the table. Moving forward, we also see Serba Dinamik’s bread and butter business (oil & gas) will continue to be the main driver of the group’s growth over the foreseeable future with the oil & gas business segment contributing >80% of total revenue in both FY20 and FY21 respectively.

Valuation & Recommendation

• With the orderbook replenishment coming within our expectations, we made no changes to our earnings forecast and we maintain our BUY recommendation on Serba Dinamik with an unchanged target price RM2.09. Our target price is derived by ascribing an unchanged target PER of 13.0x to its FY21 EPS of 16.1 sen.

• We continue to like Serba Dinamik as one of the key players in the oil & gas industry, backed by its sturdy orderbook comprising of dozens of jobs from local and overseas that will provide long-term earnings visibility, coupled with the group’s on going effort diversification into businesses that generates long-term recurring income.

• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM15.0bn by end-FY20. A firmer ringgit against the USD could affect the group’s bottom line as it will have a negative impact on the group’s earnings and vice versa.

Source: Mplus Research - 1 Jul 2020