KUALA LUMPUR: Affin Hwang Capital research has raised its earnings forecasts on Serba Dinamik Holdings Bhd on plans to consolidate its three service centres and grow its fabricating capacity.
"We raised our FY20-21E earnings by 7–10% on the assumption that the operational consolidation would drive improvement in its O&M segment margin (revised from 18% to 18.5%).
"We also revised higher our FY20 associate profit assumption to RM18.7m (CSE Global: RM12m, Kota Marudu: RM3m, Tanzania: RM2m and remaining from KAJV) and that for FY21 to RM22m from our earlier <RM10m forecasts," it said.
The stock remains Affin Hwang's top pick with an unchanged target price of RM4.50.
In a note, the research house said the reallocation to the Bintulu Integrated Energy Hub (BIEH) next year would be a strong re-rating catalyst as this would allow the group to bid for more contracts.
THe BIEH will comprise of an MRO facility, steel fabrication yards and warehouse and storiage yeards as well as blasting workshops and nine factories.
"By our estimates, the massive 30-acre development will double Serba’s current maintenance floor space, and its fabrication capacity by slightly more than that," Affin Hwang said.
It added that the consolidation would help the group's operating efficiency and margins as well as enable the group to bid for more mainenance and construction jobs in East Malaysia, Brunei, Indonesia and Singapore.
The BIEH is targeted for physical completion by Dec 10, 2019 with the MRO service centre to be completed by June 2019.
Serba Dinamik recently rented a third Bintulu service centre to cater for the higher job flow, mainly to service the five-year maintenance, construction and mofification contract secured from Petronas Carigali in February 2019 as well as the Shell MGS contracts.
The group's current outstanding order book of RM8.3bnil comprises RM6bil of O&M jobs and RM2.3bil of EPCC jobs.