Serba Dinamik reported robust 4QFY20 core net profit (excl. RM20m expenses related to sukuk buyback) of RM182.1m, surging 23% QoQ to in tandem with higher revenue of RM1.8bn (+22.5% QoQ). Stronger contributions were seen from the Group’s key segment i.e. operation and maintenance (O&M) and engineering procurement, construction and commissioning (EPCC), with revenue growing 20.6% and 105.1% respectively on the back of robust activities in the Middle East region and Malaysia. For the full-year FY20, the Group reported a 23.2% YoY increase in core net profit with revenue growing +32.8% YoY, exceeding our and consensus expectations by 10%. Given the drastic pick-up in maintenance activities, as well as higher progress on EPCC works post movement restrictions, we revise our FY21-22F higher by +10.5% on higher topline recognition with profit margins remaining stable at 17%, 14% and 10% at gross, operational and net levels. We also introduce our FY23 forecast with anticipation that the Group deliver another 15% YoY growth. We reiterate our Outperform rating on Serba with higher TP of 2.37 after the earnings adjustment, based on an unchanged ~13x multiple over FY21 EPS.

• Strong 4QFY20 on higher activities across all segments. The Group reported an even stronger 4QFY20 net profit (+23% QoQ) after it had already reported its best performance for the 3Q since 2017, which would otherwise have been sequentially lower historically. The strong performance is attributed to robust activities across all segments post global movement restrictions as well as seasonally bad weather in certain countries in the previous quarter. O&M revenue surged +20.6% QoQ particularly on higher maintenance, repair and overhaul (MRO) activities notably in Oman and Malaysia. Strong performance was also seen from the Group’s EPCC segment as revenue increased 105.1% QoQ derived from various contracts in UAE, Turkmenistan and Malaysia.

• Profit margins slightly lower, but temporary. The gross, operational and net profit margins were slightly lower by 0.4, 0.1 and 0.8 ppt YTD in FY20 though we reckon it will still be stable at above 17%, 15% and 10% levels. The reason for the slight decline was due to additional cost incurred for newly-secured projects, particularly in EPCC, and general expenses relating to Covid-19.

• All-time high orderbook. Serba’s current order book remains at a historical high of RM18.7bn translating to 3.1x of FY20 revenue. Management is expecting to maintain an RM15bn balance orderbook at the end of 2021.

• Dividend. The Group declared a fourth interim single tier dividend of 1.6sen, making up total dividend declared thus far this year to 5.5sen, translating to a 33.3% dividend payout and 3.2% yield.

Source: PublicInvest Research - 1 Mar 2021