Despite the Covid-19 pandemic, SERBADK continued to post yet another record earnings quarter, proving resiliency in its earnings growth. Moving forward, successful execution of its order-book of RM18.5b should continue fuelling short-term earnings growth, while the group has also put in place plans for longer-term growth via its ventures into offshore fabrication as well as expansion of its ICT segment. Maintain OUTPERFORM with TP of RM2.70.

Within expectations. SERBADK posted 9MFY20 net profit of RM429.6m, coming in within expectations at 80% and 74% of our and consensus full-year forecasts, respectively. Announced dividends of 1.35 sen per share is also within expectation, bring YTD dividends to 3.85 sen per share.

Yet another record quarter. 3QFY20 recorded a net profit jump of 31% YoY to RM148m, thanks to: (i) higher O&M contribution from increased activity levels from the Middle East and Malaysia, and (ii) significant jump in ICT segment’s contribution (nearly 12-fold), as the group continued its expansion into the segment. These were partially offset by a dip in EPCC contributions, given slower project billings. QoQ, 3QFY20 net profit stayed virtually flat (+0.1%), as similarly, stronger O&M and ICT were offset by weaker EPCC.

Cumulatively YTD, the group saw a net profit growth of 21% YoY, as all segments posted stronger earnings across the board. Most notable were its O&M (+32%) on higher activity levels, and ICT (grew 3.6x) as the group continued its expansion into the segment.

Resilience in strong earnings growth. Despite the Covid-19 pandemic, SERBADK continued to post yet another record earnings in 3QFY20, again proving its earnings base resiliency by continuing to deliver earnings growth. With the group’s order-book currently at a strong RM18.5b, we believe successful job execution and delivery is crucial for the group to be able to continue its unblemished earnings delivery track record. The group has also put in place ventures into offshore fabrication for the oil and gas sector, as well as expansions of its ICT segment, to continue fuelling growth over the longer term.

Maintain OUTPERFORM, with unchanged TP of RM2.70, pegged to 15x PER on FY21E EPS. No changes to our FY20-21E numbers post- results.

We continue to like SERBADK given its superb earnings delivery track record and proven resiliency. With only ~40% of its order-book exposed to oil and gas, we believe it to be one of the few resilient names among its peers to better navigate through the current oil down-cycle.

Risks to our call include: (i) lower-than-expected order-book replenishment, (ii) weaker-than-expected margins, (iii) jobs execution risks.

Source: Kenanga Research - 24 Nov 2020