This article first appeared in The Edge Financial Daily on July 27, 2017

Serba Dinamik Holdings Bhd
(July 26, RM2)
Reaffirm outperform with a target price (TP) of RM2.85: Some of Serba Dinamik Holdings Bhd’s subsidiaries have secured six operations and maintenance (O&M) contracts worth RM522.9 million. The awards comprise various projects in the United Arab Emirates (UAE) and Malaysia, with three new and three extension tenures. We have accounted for sufficient contract replenishment in our assumptions and thus they have no effect on our estimates. 

We also note that the nature of O&M contracts are on a call-out basis and therefore only valued on work order amounts. The total contract value is only an internal estimation based on historical records of similar projects. Nevertheless, we view this positively as it reflects Serba Dinamik’s ability to replenish its order book, thus supporting our “outperform” call with a TP of RM2.85 pegged to a 12 times price-earnings multiple on our forecasted financial year ending Dec 31, 2018 (FY18F) earnings per share (EPS) of 23.8 sen.

Serba Dinamik International Ltd secured two new projects from Agility Energy FZE, worth around RM420.4 million. Both contracts are located in the UAE with a tenure of three years from July 15, 2017 to July 14, 2020 for the provision of: i) maintenance, repair, overhaul for offshore and onshore pumps, turbines, compressors and other associated rotating equipment; and ii) boiler and unfired pressure vessels major upgrades, repair, maintenance, inspection, spare parts and specialist manpower supply.

Serba Dinamik Sdn Bhd secured around RM102.5 million worth of various jobs located in Malaysia comprising of: i) a contract for the provision of maintenance services for rotating equipment in Petronas LNG Sdn Bhd from Malaysia LNG Sdn Bhd for six months commencing from May 8, 2017 to Nov 7, 2017; ii) term contract for mechanical manpower and equipment supply from PRPC Utilities and Facilities Sdn Bhd for a one-year extension starting May 1, 2017 to May 31, 2018; iii) term contract to perform turbomachinery maintenance at Gas Processing and Utilities for Petronas Gas Bhd, a two-year extension from May 1, 2017 to May 31, 2019; and iv) provision of maintenance and repair services for rotating equipment for Murphy Sarawak Oil Co’s operations, another one-year extension contract from July 18, 2017 to July 17, 2019.

We like Serba Dinamik for its engineering solutions to the oil and gas and power generation industries supported by its core O&M services and engineering, procurement, construction and commissioning works. Growth prospects are from both domestic and international markets while leveraging its expertise to expand into the power generation sector as an asset owner, contractor and operator. — PublicInvest Research, July 26