KUCHING: Serba Dinamik Holdings Bhd’s (Serba Dinamik) latest multiple contract wins has garnered positive views, with analysts projecting that the group’s strong showing from a profitability standpoint will continue in FY21 due to its large orderbook backlog of RM18.7 billion.
In a filing on Bursa Malaysia, Serba Dinamik’s board of directors announced that the group has secured a total of 11 contracts in operations and maintenance (O&M), information, communication and technology (ICT) and engineering, procurement, construction and commissioning (EPCC) as of January 18, 2021.
PT Serba Dinamik Indonesia, a 75 per cent-owned subsidiary of Serba Dinamik International Ltd (SDIL), which in turn is a wholly-owned subsidiary of Serba Dinamik has secured eight O&M contracts.
SDIT International Ltd, a wholly-owned subsidiary of Serba Dinamik IT Solutions Sdn Bhd (SDIT), a wholly-owned subsidiary of Serba Dinamik Group Bhd (SDGB), which in turn is a wholly-owned subsidiary of Serba Dinamik, has secured one ICT contract.
Serba Dinamik Sdn Bhd, a wholly-owned subsidiary of SDGB, which in turn is a wholly-owned subsidiary of Serba Dinamik, has secured one O&M contract and one EPCC contract.
To note, the combined estimated contract value of the overseas contracts is approximately US$135.8 million (equivalent to approximately RM548.2 million), while the local contracts have no specific value as the contracts are on a “call-out” basis whereby the work orders will be awarded at the discretion of the client based on their activities’ schedules and rates throughout the duration of the respective contracts.
Nonetheless, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) guesstimated the local contracts to be worth approximately RM10 million, bringing total wins combined to approximately RM558 million.
“We are positive on the contract wins, showcasing Serba Dinamik’s competitive and technical capabilities,” Kenanga Research said.
“These contracts are expected to fetch mid to high-teens gross margins, in line with the group’s historical average.
“Additionally, most of the Indonesian O&M contracts secured this time round are from the power sector – a reflection of the group shifting reliance away from the oil and gas sector.
“These are the group’s first wins in financial year 2021 (FY21), bringing its order-book to RM18.7 billion – of which only 40 per cent are from oil and gas sector.”
Despite the challenging times, the research arm expected Serba Dinamik to continue delivering earnings growth moving forward, backed by the group’s strong and diverse order-book, as well as its global reach coupled with its high job delivery competencies.
“Based on the group’s track record, Serba Dinamik has been proven to be one of the most resilient names in terms of earnings growth delivery.”
Meanwhile, the research arm of Hong Leong Investment Bank Bhd (HLIB Research) gathered that the aforementioned contract wins constituted circa three per cent of Serba Dinamik’s previous orderbook balance of RM18.2 billion.
“While we view this as a positive development for the company, the contract wins were within expectation and is not expected to increase its earnings significantly,” HLIB Research said.
The research arm noted that with these contracts, Serba Dinamik’s current orderbook backlog now stands at RM18.7 billion, with EPCC at 47 per cent, O&M at 41 per cent and ICT at 12 per cent.
“Serba Dinamik’s strong showing from a profitability standpoint is expected to continue in FY21 due to its large orderbook backlog of RM18.7 billion.
“Its orderbook backlog would also be able to sustain its earnings growth in the next two years as the burn rate for the Block 7 and innovation hub contract is only expected to peak in FY22.”
HLIB Research also viewed that the instance of a potential equity raising exercise in the future is low as Serba Dinamik has raised enough funds for the group’s working capital requirements for its Abu Dhabi innovation hub and data centre projects.