Summary

• Serba Dinamik Holdings Bhd has received and accepted a letter of award from Future Digital Data Systems L.L.C (FDDS) to undertake the engineering, procurement, construction and completion of a data centre and its related facilities, infrastructure, and landscaping. The project shall be built at Mussaffah, Abu Dhabi and will be a master plan for total information technology (IT) with capacity of 20MW that can host mission critical systems and provide co-location services, business continuity and managed services facilities.
• The contract price including taxes is a fixed lump sum price of approximately US$350.0m (approximately RM1.47bn) will be built by several phases – Phase 1A valued at U$$155.0m, Phase 1B valued at US$45.0m, Phase 2A valued at US$105.0m and Phase 2B valued at US$45.0m. The total duration of the contract is for 4 years. We reckon that the abovementioned project will yield gross margins around 15%, translating to a potential gross profit of >RM200.0m.
• We are upbeat on the abovementioned contract secured and will strengthen the group’s outstanding orderbook to approximately RM18.50bn, providing earnings visibility till 2026. Breakdown of the existing orderbook; 50.0% from EPCC, 40% from O&M and 10% from ICT.  
• The latest win deciphers Serba Dinamik efforts on diversification into other income stream apart from their bread and butter business. Assuming a burn rate of approximately RM2.30bn for the remainder of the year, the group outstanding orderbook by end-2020 will come at approximately RM16.20bn which exceeded our expectations of RM15.00bn. Moving forward, we reckon that the oil & gas business segment will still anchor the topline, contributing >70.0% of total revenue in both FY20 and FY21 respectively.

Valuation & Recommendation

• We raised earnings forecast by 1.0% and 8.8% to RM532.6m and RM591.4m for FY20f and FY21f respectively to account for the stronger-than-expected orderbook replenishment. Consequently we maintain our BUY recommendation on Serba Dinamik with a higher target price RM2.27 (from RM2.09). Our target price is derived by ascribing an unchanged target PER of 13.0x to its revised FY21 EPS of 17.5 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 ongoing effort diversification into businesses that generates recurring income.
• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM16.20bn 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 with majority of existing orderbook derived from overseas.

Source: Mplus Research - 7 Aug 2020