Serba Dinamik seen with consistent earnings growth

This article first appeared in The Edge Financial Daily, on February 6, 2020.
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Serba Dinamik Holdings Bhd
(Feb 5, RM2.31)
Maintain buy with an unchanged target price of RM2.81:
We are positive on Serba Dinamik Holdings Bhd’s 12 newly secured contracts with an estimated combined value of RM950 million, demonstrating that the company is on track to expand its order book.

While keeping our earnings estimates, the company remains as one of our sector’s top picks, with consistent earnings growth, backed by a robust order book and contract flows.

Serba Dinamik announced that it had secured nine operation and maintenance (O&M), one engineering, procurement, construction and commissioning (EPCC) and two other products and services contracts. The contract durations range from six months to seven years, spanning until 2026.

Half of these contracts are international jobs, mainly from Indonesia and Oman, with a total contract value of US$78 million (about RM321 million). The other six contracts, from Malaysia, are on a “call-out basis” whereby work orders will be awarded at the discretion of the clients.

We understand that the company has estimated potential work orders to be worth RM629 million, bringing the total sum of the 12 contracts to RM950 million.

Note that the biggest contract is the three-year instrument maintenance and services contract from Petroliam Nasional Bhd, involving five packages that cover plant turnaround maintenance for Peninsular Malaysia, Sarawak, Sabah and Labuan.

This contract could potentially be worth up to RM500 million. Interestingly, Serba Dinamik also won a six-month smart virtual reality health, safety and environmental training centre contract from PT Pertamina Hulu Kalimantan Timur. While this contract is relatively smaller (RM10 million), it showcases the company’s ability to grow its information technology-related segment.

With the new RM950 million jobs, Serba Dinamik’s current order book stands at RM10.7 billion, with a 2:1 split between O&M and EPCC jobs.

We are keeping our earnings estimates as they are within our financial year 2020 forecast (FY20F) order-book replenishment assumption of RM7.5 billion. With that, we estimate Serba Dinamik to end the financial year ended Dec 31, 2020 (FY20) with an outstanding order book of RM13.5 billion.

We believe the company could achieve 25% to 30% earnings growth if its order book is able to hit RM15 billion by end-FY20. — RHB Research Institute, Feb 5