Serba Dinamik’s rising orderbook to drive growth

0

Serba Dinamik is in the midst of negotiating for the renewal of a couple of contracts in Oman, which analysts say will be a positive if secured.

KUCHING: Serba Dinamik Holdings Bhd’s (Serba Dinamik) growth prospects have been viewed positively as it is expected to be driven by its rising orderbook.

“Moving forward, we expect further contract wins throughout the year as the company targets an end-2019 order-book of RM10 billion, from the current RM9 billion with year to date (YTD) wins of circa RM2.6 billion, providing two to three years of earnings’ visibility.

“While Malaysia and the Middle East still remain as the company’s stronghold markets, it is also eyeing further expansion opportunities in the central Asia region, as well as expansions in its IT-related services,” said the research team at Kenanga Investment Bank Bhd (Kenanga Research).

Meanwhile, on Serba Dinamik’s second quarter of 2019 (2Q19) results, the research team pointed out that the group posted yet another record quarter in 2Q19, which was well expected, led by higher activities from both core operation and maintenance (O&M) and engineering, procurement, construction, and commissioning (EPCC) segments.

“2Q19 profit after tax, amortisation, and minority interest (PATAMI) jumped 27 per cent y-o-y, thanks to surge in EPCC profit (up 73 per cent) due to its chlor-alkali plant in Tanzania, higher O&M activities (up 34 per cent) in Malaysia, Indonesia and the Middle East, and higher IT-related services (recorded in ‘others’ segment) from Qatar and India.

“Sequentially, 2Q19 PATAMI surged 16 per cent q-o-q, similarly thanks to higher EPCC (up 28 per cent) from jobs in Tanzania and Malaysia, mild climb in O&M (up seven per cent) due to increased works in Malaysia and the Middle East, coupled with greater IT-related services.

“Cumulatively, the first half of 2019 (1H19) PATAMI also leapt 24 per cent, due to similar aforementioned reasons, from stronger O&M (up 36 per cent), EPCC (up 41 per cent) and increase in IT-related services,” it explained.

In another note, the research team at Affin Hwang Investment Bank Bhd (Affin Hwang) noted that Serba Dinamik’s Tanzania chlor-alkali project saw a higher revenue recognition amounting to RM38 million (compared with RM2 million in 1Q19) while the contribution from the US$66 million Laos hydropower plant project continued to be minimal (RM3 million) due to the seasonal monsoon season in 2Q/3Q.

It noted that its Laos project would likely only see a pick-up from 4Q19 onwards. As for Serba Dinamik’s project in Kuwait, it noted that it has benefited from a total of RM13 million in call-out work during the quarter, having seen no call-out work since 2Q18.

“Serba Dinamik is in the midst of negotiating for the renewal of a couple of contracts in Oman (individual contract value ranging from US$50 million to US$80 million), which will be a positive if secured. Activities in Malaysia are expected to remain robust supported by high Bintulu maintenance needs,” Affin Hwang added.

All in, it retained its ‘buy’ call on the stock. It said: “We reaffirm our bullish stance on Serba’s earnings growth backed by its latest outstanding order book of RM9 billion (O&M portion at RM6 billion and EPCC at RM3 billion), on track to achieving its RM10 billion target by end-2019.”

Kenanga Research reiterated its ‘outperform’ rating on the stock and explained, “We continue to like Serba Dinamik for having one of the best earnings delivery track records within the oil and gas space, coupled with its outstanding management and best-in-class return on equity against sector peers.”