Serba Dinamik insulated from O&G majors’ capex cuts

The research house maintained its “buy” call on Serba Dinamik with a target price of RM2.10 based on a 2021 price-earnings multiple of 10.5 times.

PETALING JAYA: Serba Dinamik Holdings Bhd’s outstanding order book of RM18.5bil remains resilient, with no requests by its clients for discounts, contract cancellations or delayed execution.

According to TA Research, the resilient order book was due to Serba Dinamik’s marginal exposure to offshore oil and gas (O&G) upstream segment, making up only 10% to 20% of its total projects.

As such, the group is largely insulated from major upstream capital expenditure cuts implemented by oil majors.

Note that the majority of Serba Dinamik’s contracts consist of O&G downstream and utilities projects.

Meanwhile, Serba Dinamik is kick-starting the US$1.8bil (RM7.7bil) Block 7 contract in Abu Dhabi.

The bulk of project revenue will be recognised during the physical construction work phase for Block 7, which is slated to commence in mid-2021.

The project, which is targeted for completion in 2024, comprises engineering, procurement and construction of an innovation hub, academic campus, accommodation facilities and IT infrastructure.

“Working capital requirements are expected to peak later in 2022 to RM500mil per annum.

“Management is confident of funding this via internal monies, claims invoiced to Block 7, and debt financing (unutilised i-Sukuk and credit facilities totalling RM2.3bil).

“Given the robust gross profit margin of 20% for this project, management may even plough back profits to fund the working capital, ” said TA Research.

Apart from that, the group will receive breakeven profits from the partial leasing out of Teluk Ramunia yard and execution of RM150mil to RM200mil of its existing orders in the financial years 2020 to 2021.

“We understand that only a small portion (less than 10% acreage) of the 170-acre yard will be rented out on a long-term basis.

“As such, management expects the yard to breakeven in financial year 2020 to 2021 on the back of 50% utilisation.

“In the worst-case scenario, the group estimates a payback period of five years on return on investment for this yard, ” said TA Research.

The research house maintained its “buy” call on Serba Dinamik with a target price of RM2.10 based on a 2021 price-earnings multiple of 10.5 times.

This is on the back of earnings resilience underpinned by the group’s core business of evergreen recurring operations and maintenance services, current order book of RM18.5bil, which translates to robust earnings visibility up to 2023, as well as rising traction in its thrust to diversify into ICT, evident from its ballooning RM1.85bil ICT order book.

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