Summary

• Serba Dinamik Holdings Bhd (Serba Dinamik) has secured a total of nine contracts, comprising of (i) six operations & maintenance (O&M) contracts in Malaysia, Indonesia & UAE, (ii) one engineering, procurement, construction and commissioning (EPCC) contract in Indonesia and (iii) two information, communication & technology (ICT) contracts in Indonesia and Republic of Guinea. The recent batch of contracts will provide sustainable income till end-2023.
• With the exclusion of four O&M contracts located at Malaysia due to their nature of work scopes being call-out basis, remainder two O&M, EPCC and ICT contracts secured has a combined value of approximately US$114.3m (c.RM465.9m). The move bumps the outstanding orderbook to approximately RM18.7bn, representing 4.1x orderbook 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. Assuming a burn rate of approximately RM400.0m in December 2020, Serba Dinamik’s outstanding orderbook will come at RM18.3bn by end-2020; within our assumption of RM18.5bn.
• Following the new wins, bulk of the outstanding orderbook remains within the O&M and EPCC segment; collectively at approximately 89%, whilst the remainder 11% makes up from the ICT segment. Moving forward, Serba Dinamik aims to grow their ICT business arm as the group aims to divert from the oil & gas industry overtime.
• We reckon that Serba Dinamik’s bread and butter business (oil & gas) will be positioned as main driver of the group’s growth over the foreseeable future, contributing >80% of total revenue in FY21. We are sanguine on the contract wins as we continue to favour Serba Dinamik as one of the most resilient oil & gas player in Malaysia that is able to weather the global economic downturn.

Valuation & Recommendation

• Given that the contract wins are within our forecast, we made no changes to our earnings estimates. We maintain our BUY recommendation on Serba Dinamik with an unchanged target price RM2.41. Our target price is derived by ascribing an unchanged target PER of 13.0x to its FY21f EPS of 18.5 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 RM16.5bn by end-FY21f. Meanwhile, 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 - 4 Dec 2020