Summary

• Serba Dinamik Holdings Bhd (Serba Dinamik) has secured its second batch of contract wins this year; comprising of two operations & maintenance (O&M) contracts in Malaysia and Indonesia and three information, communication & technology (ICT) contracts, all located at India. The recent batch of contracts will ensure long-term sustainable income till early 2036.

• With the exclusion of the O&M contract located at Malaysia due to the nature of work scopes being call-out basis, the remainder O&M and ICT contracts secured has a combined value of approximately USD99.6m (c.RM408.8m). The move has bumped the outstanding orderbook at approximately RM18.9bn (slightly increased from RM18.7bn recorded at end-December 2020), representing 3.1x orderbook cover ratio against FY20 revenue of RM6.0bn.

• We remain sanguine on Serba Dinamik’s prospects, riding on the recovery in the oil & gas industry with Brent oil prices has now risen to hover around USD70/bbl. We reckon that the recovery is sustainable, premised to the extension of output curb from OPEC and its allies, whilst demand will be supported by the global economic recovery following the progressive rollout of Covid-19 vaccine. Meanwhile, crude oil rigs in US have now surpassed 300 since mid-February 2021 (from slightly below 200 in October 2020).

• With the latest win, approximately 89% of the outstanding orderbook remains within the O&M and EPCC segment, whilst the remainder 11% makes up from the ICT segment. Hence, we believe that the O&M and EPCC segments will continue to anchor the group’s growth over the foreseeable future, contributing approximately 80% of total revenue in FY21.

• We also note that the majority of the contract wins are skewed towards the ICT segment. The move is largely in line with Serba Dinamik’s aim to divert from the oil & gas industry overtime.

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 RM2.37. Our target price is derived by ascribing an unchanged 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 effort diversification into businesses that generates recurring income.

• Risks to our recommendation include failure to hit the targeted outstanding orderbook of RM18.0bn 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 - 10 Mar 2021