This article first appeared in The Edge Financial Daily on May 31, 2019

Serba Dinamik Holdings Bhd
(May 30, RM4.10)
Maintain buy with a target price of RM5.70: Serba Dinamik Holdings Bhd’s first quarter of financial year 2019 (1QFY19) net profit stood at RM112 million or +21.1% year-on-year (y-o-y) and +2.6% quarter-on-quarter (q-o-q) — 22% of our full FY19 forecasts. Earnings growth was primarily driven by its operations and maintenance (O&M) segment with operating profit increasing to RM157.8 million (+38% y-o-y) — 89% of its 1QFY19 operating profit.

Its O&M segment’s operating profit rise was mainly attributable to a higher revenue of RM859 million (+35.3% y-o-y). The company’s engineering, procurement, construction and commissioning (EPCC) revenue and operating profit stood at RM111 million (+34.7%) and RM17.2 million (+17.9% y-o-y). The EPCC and O&M segments’ strong revenue and operating profit were primarily attributable to a y-o-y increase in order book. Serba Dinamik’s order book has increased approximately 60% y-o-y. The current outstanding order book is estimated at about RM8.5 billion.

Petroliam Nasional Bhd is committed to spending RM15 billion on the domestic oil and gas (O&G) sector. We believe state-owned Petroleum Sarawak’s initiative to boost Sarawak’s participation in the O&G sector bodes well for Serba Dinamik, hailing from Sarawak. We also believe higher oil prices after 1QFY19 would be positive for Serba Dinamik. We opined that oil majors would be more willing to dish out contracts. Serba Dinamik is on track to achieve its RM10 billion order book target by end-FY19.

We believe Serba Dinamik has a healthy order book backlog for future growth. Its constant wins of O&M contracts, mostly recurring in nature, is one of the key reasons we like this stock. O&M contracts make up the largest chunk of Serba Dinamik’s entire order book at about 70%. — AllianceDBS Research, May 30