Serba Dinamik (Serba) secured 15 new contracts, with ten maintenance (O&M) projects in Malaysia and Indonesia and five construction (EPCC) contracts in Malaysia and Nepal. Total value of the contract awards are approximately RM386.3m. While this development will improve visibility of its future earnings with orderbook standing at a healthy RM18bn, we are of the view that issues with regard to its on-going statutory audit, concerns over corporate governanceas well as the tight deadline for submission of its 2020 Annual Report may continue to cloud until these are convincingly addressed. We make no changes to our forecasts for now. We understand that the Group will release its 6QFY21 results in September. Therefore, our TP of RM0.44 based on a discount of 50% to its trailing 12-month book value of 0.88 remains unchanged. Maintain Neutral.

• The contracts. Based on our records, this award represents the third batch of contract wins in 2021 with four out of 15 contracts internationalbased projects in Indonesia and Nepal. Total value reported for O&M projects outside Malaysia, as well as all (including Malaysia) EPCC contracts is about RM286.3m. There are seven local contracts in the O&M segment with no values stated as they will be based on a call-out basis. Nevertheless, based on the work scope, it is estimated that the value would be around RM100m. Therefore, total value for this batch of projects is estimated at RM386.3m The contracts’ lifespans vary, with completion up to 2025. The projects are estimated to yield 17% profit margin at the gross level.

• Orderbook maintained at RM18bn. With this contract, Serba has successfully secured a total of RM1.4bn worth of projects from January todate, maintaining its orderbook balance at around RM18bn with earnings visibility up to 3 years based on 12-months FY20 revenue. Serba’s EPCC segment makes up 47% of its total orderbook, followed by O&M at 42% and ICT at 11%. While no specific value on orderbook target for CY21 has been given, management had, earlier this year, maintained its optimistic view to grow its orderbook or at least to maintain its balance orderbook by the end of 2021. Nevertheless, COVID-19 has affected the Group’s bids in the tender process globally, though we think this could also have been affected by the existing statutory audit and corporate governance-related issues. Recall, the Group has exceeded its CY20 year-end balance orderbook target of RM15bn despite the global economic downturn due to the Covid-19 outbreak.

Source: PublicInvest Research - 12 Aug 2021