Serba Dinamik is undervalued despite strong performance, analyst says

The group’s closest peer, Dialog Group, is trading at 30 times PER

by FARA AISYAH / pic by TMR GRAPHIC 

SERBA Dinamik Holdings Bhd is currently undervalued given its strong consistent performance and aggressive orderbook growth.

The oil and gas-(O&G) based service provider closed at RM1.67 yesterday, which Inter-Pacific Research Sdn Bhd analyst Daryl Law Shih Shion stated is well below its target price of RM2.72 based on a 13-times target price-to-earnings ratio (PER) to 2021 forecast earnings per share (EPS) estimates of 20.9 sen.

The group’s closest peer, Dialog Group Bhd, is trading at 30 times PER, the research outfit noted.

Serba Dinamk’s forward earnings look to be driven by strong engineering, procurement, construction and commissioning (EPCC) segment contributions from recently awarded projects, barring any development delays.

“We like Serba Dinamik for its strong market position, an integrated service provider with a diverse geographic presence and stable revenue from maintenance projects,” he said in a note on Monday.

As of August 2020, the group’s orderbook stood at RM18.5 billion, with 40% or RM7 billion of that under its operation and maintenance (O&M) segment, 50% or RM9.3 billion under the EPCC segment and 10% or RM1.9 billion under its information and communication technology (ICT) segment.

A substantial portion of Serba Dinamik’s orderbook is derived from the RM7.7 billion (40% of the RM18.5 billion orderbook) Block 7 Abu Dhabi Innovation Hub property development project, parked under its EPCC segment.

As of July 2020, the group’s tenderbook value was RM19.5 billion. Serba Dinamik’s net profit in the second quarter ended June 30, 2020 (2Q20), increased 13.37% year-on-year (YoY) to RM147.88 million from RM130.44 million last year due to higher maintenance, repair and overhaul activities in the Middle East regions such as the United Arab Emirates, Qatar and Oman, and Malaysia.

Its EPS for the quarter was also higher at 4.39 sen against 3.87 sen in April to June 2019.

The group’s revenue in 2Q19 rose 26.32% YoY to RM1.44 billion.

“The new contracts won from the O&M, EPCC and ICT segments, renewal of existing O&M contracts and acquisitions of Teluk Ramunia Yard in Kota Tinggi, Johor, are expected to enhance the group’s financial position and profitability,” said the group in a filing to Bursa Malaysia.

The board has declared a second interim single-tier dividend of 1.3 sen to be paid on Sept 29, 2020.

Serba Dinamik previously said it was aiming to grow its earnings and revenue by between 10% and 15% in the financial year ending Dec 31, 2020, backed largely by overseas projects within its strong orderbook.

The engineering services and solutions firm has also been working on reducing dependency on O&G revenue for three years now.

It expects to narrow the revenue contribution of the O&G sector to 30% from the current 75% of total group revenue.

To achieve this, the group will concentrate on O&M and EPCC contracts in other sectors besides O&G.