Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on November 23, 2017

Serba Dinamik Holdings Bhd
(Nov 22, RM2.78)
Maintain outperform call with a higher target price of RM2.95:
Serba Dinamik Holdings Bhd’s nine months of financial year 2017 (9MFY17) results came in above expectations on the back of stronger-than-expected margins. Hence, we upgrade our FY17 and FY18E (estimate) earnings by 6%.

Serba Dinamik registered a 9MFY17 core net profit of RM229.5 million, accounting for 81% and 80% of our and consensus full-year estimates respectively. A third interim dividend of 1.5 sen per share is proposed, bringing year-to-date dividend per share to 5.2 sen which also beat our expectation of 6.3 sen.

The company’s third quarter of FY17 (3QFY17) earnings decreased by 18% quarter-on-quarter (q-o-q) to RM68 million mainly due to weaker contribution from the engineering, procurement, construction and commissioning (EPCC) segment (-33%) as a result of a delay in construction work of three small hydropower plants in Kota Marudu in Sabah due to bad weather as well as higher tax expense (+2.5 times).

We are guided that additional RM30 million tax expense to be claimed by the tax authority for the assessment period of 2010 to 2015 would lift its effective tax rate higher in the next few quarters. Year-on-year (y-o-y), Serba Dinamik’s net earnings improved by 52% from RM44.9 million in 3QFY16 in tandem with a 28% growth in top line thanks to stronger contribution from both operations and maintenance (O&M) (+10%) and EPCC (+73%) segments, masking higher tax expense (+6.1 times).

Note that the Qatar operation is not affected by the diplomatic crisis and continued to achieve higher revenue contribution (+30% q-o-q; +63% y-o-y) backed by new contracts and ad-hoc work orders from existing clients. Pursuant to its Pengerang development plan in August this year, Serba Dinamik announced that Top Luxury Sdn Bhd, its wholly-owned subsidiary, has been awarded a contract to undertake the construction works for the Pengerang eco-Industrial Park which include the establishment of Malaysia’s first maintenance, repair and overhaul and inspection, repair and maintenance Global Centre of Excellence. The construction work is likely to commence by 1Q of calender year 2018 and will take approximately two years to complete with a contract value of RM400 million.

Upgrade our FY17 and FY18E earnings estimates by 6% to RM300.3 million and RM329.7 million, respectively, assuming higher FY17 and FY18E gross margins to 17.5% and 17% for O&M segment (from 17% and 16.5% previously) and 17% for EPCC segment (from 16%).

We continue to like Serba Dinamik for its decent earnings growth of 22% and 10% in FY17 and FY18, backed by both O&M and EPCC segments via geographical expansion, stable margins of 11.7% and 11.2%, and superior return on equity of 21% and 20%. Risks include lower-than-expected order book replenishment, failure to execute power plants, and weaker-than-expected margins. — Kenanga Research, Nov 22

      Print
      Text Size
      Share