Summary

• Serba Dinamik Holdings Bhd 2QFY20 net profit climbed 13.4% YoY to RM147.9m, underpinned by higher contribution across all four major business segments. Revenue for the quarter gained 26.3% YoY to RM1.44bn. For 1HFY20, cumulative net profit rose 16.1% YoY to RM281.6m. Revenue for the period improved 28.0% YoY to RM2.72bn.

• The reported earnings came slightly above our forecast, accounting to 52.9% of our full year net profit forecast of RM532.6m and 49.5% of consensus forecast of RM568.6m. The reported revenue also came slightly above expectations, amounting to 51.5% of our full year estimate of RM5.28bn and 52.5% of consensus revenue of RM5.17bn.

• Net gearing level in 2QFY20 reduced to 0.8x (from 1.0x in 1QFY20) following the completion of private placement exercise. A second interim dividend of 1.3 sen per share, payable on 29th September 2020 was declared.

• Moving forward, Serba Dinamik will continue to eye its overseas expansion, focusing in the Middle East countries following the latest contract win. Together with the acquisition of Teluk Ramunia Yard in 3Q2020, the waste water treatment plant under progress and Pengerang Integrated Development remains on track for completion by 1Q2021, whilst the Bintulu Integrated Energy hub will provide long term recurring income for the group.

• Although oil & gas players remain cautious on their CAPEX and OPEX, Serba Dinamik’s orderbook replenishment was largely unaffected. The group’s outstanding orderbook of approximately RM18.50bn will anchor earnings growth over the next three years.

• At the same time, Serba Dinimik aims to reduce their reliance on the oil & gas business segment, targeting revenue contribution from the aforementioned sector to 30% over the long run (from approximately 95.5% recorded in 1HFY20). Still, we reckon that the oil & gas business segment will anchor the topline, contributing >70.0% of total revenue in both FY20 and FY21 respectively.

Valuation & Recommendation

• We raised our earnings forecast by 10.2% and 6.1% to RM586.9m and RM626.0m for FY20f and FY21f respectively to account for the stronger execution of oil & gas segment. Consequently, and we maintain our BUY recommendation on Serba Dinamik with a higher target price RM2.41 (from RM2.27). Our target price is derived by ascribing an unchanged target PER of 13.0x to its revised FY21f EPS of 18.6 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 diversification effort into businesses that generates recurring income.

• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM16.20bn by end-FY20, while 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 - 26 Aug 2020