Serba Dinamik’s 2QFY20 net profit climbed 11 per cent q-o-q in tandem with a 13 per cent revenue rise to RM1.4 billion, underpinned by both the O&M, and EPCC segments.
KUCHING: Going against the odds was Serba Dinamik Holdings Bhd (Serba Dinamik) as its net profit for the first half of its financial year 2020 (1HFY20) rose 16 per cent, in tandem with a 28 per cent increase in revenue to RM2.7 billion.
Even though its operating margins were flattish, AmInvestment Bank Bhd (AmInvestment Bank) saw that Serba DInamik’s lower net margin stems from interest charges doubling year on year (y-o-y) due to working capital requirements, Covid-19 impacted losses from manufacturing associates and a one-percentage point increase in effective tax rate.
Serba Dinamik’s 2QFY20 net profit climbed 11 per cent quarter on quarter (q-o-q) in tandem with a 13 per cent revenue rise to RM1.4 billion, underpinned by both the operation and maintenance (O&M), and engineering, procurement and construction (EPCC) segments.
“Geographically, this growth was largely driven by operations in the Middle East region, followed by Malaysia that caused the Middle Eastern share of revenue to expand to 67 per cent in 2QFY20 from 62 per cent in 1QFY20,” AmInvestment Bank said in its notes yesterday.
Serba Dinamik’s outstanding order book has surged by nine per cent q-o-q to RM18.5 billion currently with the recent award of another substantive construction project in Abu Dhabi, United Arab Emirates worth US$350 million (RM1.5 billion) from Future Digital Data Systems LLC (FDDS) to design, procure and construct a data centre together with infrastructure and landscaping works. This already exceeds its FY20F year-end target of RM15 billion.
“Notwithstanding Middle Eastern losses incurred by other Malaysian-based construction companies in the past, the group remains confident of executing these huge Abu Dhabi projects given that its managing director Datuk Mohd Abdul Karim, with his savvy business network, has successfully completed multiple oil & gas jobs in the region with commendable profit margins over the past 10 years.
“As such, the group’s good earnings visibility, together with its recurring income profile and improving balance sheet risks translate to an unjustified FY21F PE of only nine times versus its closest peer Dialog Group’s over 30 times.”
Researchers with Kenanga Investment Bank Bhd (Kenanga Research) believed Serba Dinamik was still in growth mode.
“Despite being a mostly challenging quarter for the oil and gas industry, as well as the overall global economy, due to the impact of lockdowns amidst the Covid-19 pandemic, Serba Dinamik had proven once again its earnings base resiliency by being able to continue delivering earnings growth,” it said in its own report.
“With the group’s order-book currently at a strong RM18.5 billion, we believe successful job execution and delivery is crucial for the group to be able to continue its unblemished earnings delivery track record.”
The group has also put in place ventures into offshore fabrication for the oil and gas sector, as well as expansions of its ICT segment to continue fuelling growth over the longer term.
“We continue to like Serba Dinamik given its superb record of earnings delivery and proven resiliency,” Kenanga Research said. “With only about 40 per cent if its order-book exposed to oil and gas, we believe it to be one of the few resilient names among its peers to better navigate through the current oil downcycle.”