RHB Research raises target price for Serba Dinamik to RM5.42

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KUALA LUMPUR (Nov 26): RHB Investment Bank Bhd Research has raised its target price for Serba Dinamik Holdings Bhd by 26% to RM5.42, after the oil and gas services group posted strong results for the third quarter ended Sept 30, 2019 (3QFY19).

RHB Research analyst Sean Lim Ooi Leong said the company posted better-than-expected results for the quarter, with a 36% year-on-year increase in core net profit to RM113 million, bringing 9MFY19 earnings to RM356 million.

"The results were above our and street's full-year estimates — at 79% and 76% [respectively] — largely due to higher joint venture (JV) and associates contributions, and stronger operations and maintenance (O&M) margins," wrote Lim in a note today.

On a quarter-on-quarter basis, however, core earnings fell 13% due to lower contribution from O&M and engineering, procurement, construction and commissioning (EPCC) project billings, as well as lower IT-related revenue.

This was cushioned by higher JV and associates contributions, led by higher contributions from CSE Global Ltd and additional profit recognition from the difference between management and audited accounts of certain associates, he said.

Serba Dinamik's positive outlook remains intact, given its RM10 billion orderbook. Citing recent news reports, the analyst said the group's management is targeting a RM15 billion orderbook by end-2020, higher than its earlier target of RM13 billion to RM14 billion, albeit maintaining its earnings and topline guidance of 15% to 20%.

The group is targeting to increase capital expenditure (capex) by 20% in 2020, with the potential of a smallish M&A to enhance technology infrastructure and geographical positioning.

Given the aggressive growth plans, the research house expects further sukuk drawdowns for working capital and capex purposes.

"We raise FY19-FY21 earnings by 5% to 7% in view of stronger margins from the O&M division and higher strong JV & associates contributions. Our FY20-FY21 earnings growth of 10% per annum is still relatively conservative versus the management's target of 15% to 20%," said Lim.

At 9.50am, Serba Dinamik shares rose 2 sen or 0.47% to RM4.32, translating to a market capitalisation of RM6.34 billion.