Serba Dinamik bags 10 new contracts


  • Analyst Reports
  • Thursday, 02 Jul 2020

PETALING JAYA: Serba Dinamik Holdings Bhd’s ability to clinch new jobs in a cyclical downcycle continues to cast a positive light on the company that provides engineering services and solutions for the oil and gas (O&G) sector.

The counter gained three sen to close at RM1.68 yesterday after announcing its subsidiaries had bagged 10 new contracts spread across Malaysia, Indonesia and Zambia.

These deals comprised three overseas jobs in Indonesia and Zambia, with a combined value of about RM543.5mil.

Specifically, this included one engineering, procurement, construction and commissioning (EPCC) contract in Indonesia and two information, communications and technology (ICT) jobs in Zambia.

The other seven were operations and maintenance contracts in Malaysia.

Kenanga Investment Bank Research noted that while the local contracts did not carry specific values, as they were on a “call-out” basis, it said the jobs could be worth around RM220mil combined.

This would bring the total wins to an estimated sum of RM760mil, the brokerage said.

The 10 new contracts represent the group’s third contract win year-to-date y-t-d), bringing y-t-d wins to around RM9.4bil.

“Post-win, its order book currently stands at around RM17.5bil, providing three to four years of revenue visibility.

“We expect these contracts to fetch 15%-20% gross margins, in line with the company’s historical average, ” Kenanga Research said.

It has maintained its “outperform” call on Serba Dinamik, with an unchanged target price of RM2.70, pegged to 15 times forward price-earnings (PE).

“We continue to like Serba Dinamik, given its superb record of earnings growth delivery, and also having one of the best return-on-equity ratios within the sector.

With only about 40% of its order-book exposed to O&G, we believe it to be one of the few resilient names among its peers to better navigate through the current oil downcycle, ” Kenanga Research said.

Similarly, AmInvestment Bank Research said it was positive that Serba Dinamik could still secure fresh jobs during an O&G cyclical downturn

It has maintained its “buy” stance on the company, with an estimated unchanged fair value of RM2.20, based on a 30% discount to the diluted sum-of-parts valuation of RM3.15.

AmInvest Research noted the fresh contracts would enlarge Serba Dinamik’s already huge order book by 3% to RM17.5bil, exceeding the management’s target of RM15bil for the financial year ending Dec 31,2020.

Meanwhile, UOB Kay Hian (UOBKH) Malaysia Research said it did not expect the recent new contract wins to significantly boost Serba Dinamik’s earnings, given the fact that the largest contract value (two ICT jobs) was spread over seven years.

“We are still assuming slower work order recognition from both the EPCC and O&M divisions, factoring in potential disruptions due to the Covid-19 pandemic, ” the brokerage said.

UOBKH has maintained its “hold” call on Serba Dinamik, with a target price of RM1.80, pegged to 10 times the 2020 PE in a low oil price environment.

“Although we continue to like Serba Dinamik for its recurring maintenance income stream and its proven execution for consistent earnings growth, our PE assumption is significantly lower versus consensus, to factor in cash flow concerns and more dilution risks as it is increasingly clear that more fund-raising is inevitable, ” it explained.

“We note that Serba Dinamik’s net profit growth will inevitably lag behind order-book growth, due to the surge in costs (especially borrowings) ahead of actual work order flow, ” it added.

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