Summary

• Serba Dinamik Holdings Bhd’s 4QFY20 net profit climbed 43.5% YoY to RM202.1m, underpinned by higher contribution across all business segments. Revenue for the quarter rose 33.4% YoY to RM1.82bn. For FY20, cumulative net profit added 27.2% YoY to RM631.7m. Revenue for the year gained 32.8% YoY to RM6.01bn.

• The reported earnings came slightly above our forecast, accounting to 107.5% of our full year net profit forecast of RM587.8m and 110.1% of consensus forecast of RM573.7m. The reported revenue also came slightly above expectations, amounting to 110.5% of our full year estimate of RM5.44bn and 114.0% of consensus revenue of RM5.27bn.

• Net gearing level in FY20 stood at 0.9x (unchanged since 3QFY20) as the group continues to hinge on external borrowings to cater for business expansion. Albeit that, the recent completion of private placement is expected to pare down the net gearing to 0.6x in FY21f and improve net margins by approximately 1.0% per annum. A fourth interim dividend of 1.6 sen per share, payable on 30th March 2021 was declared.

• We opine that the latest bulk of contract wins in January 2021 reinforced our views on Serba Dinamik’s capabilities in securing recurring and new projects within the oil & gas industry. At the same time, the recent recovery in crude oil prices, coupled with the acceleration of Covid-19 vaccine rollout bodes well with major oil & gas players are potentially looking towards an upward revision in their CAPEX plans for 2021.

• While the oil & gas business segment will continue to anchor the overall earnings growth, Serba Dinamik is gradually shifting towards other business segments, particularly the ICT business segment. For the time being, the ICT segment orderbook of approximately RM2.2bn (close to 12.0% of total orderbook of RM18.7bn) will sustain earnings visibility over the foreseeable future.

Valuation & Recommendation

• We tweaked our earnings higher by 8.9% and 5.7% to RM674.7m and RM714.2m for FY21f and FY22f respectively, on the back of the higher contribution from the O&M segment. After taking into account of the recent completion of private placement, we maintain our BUY recommendation, but with a lower target price RM2.37 (from RM2.41). Our target price is derived by ascribing a target PER of 13.0x to its FY21f EPS of 18.1 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 diversification effort into businesses that generates recurring income.

• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM18.00bn by end-FY21, 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 - 1 Mar 2021