Serba Dinamik’s prospects remain robust

by NUR HANANI AZMAN / graphic by TMR

SERBA Dinamik Holdings Bhd’s latest share price at RM1.70 is underperformed, given at such valuation, it is trading at a forward price-earnings (PE) multiple of 9.8 times and 9.2 times for its financial year 2020 (FY20) and FY21 respectively.

Malacca Securities Sdn Bhd senior analyst Kenneth Leong said Serba Dinamik’s pricing is well below its closest peer — Dialog Group Bhd which is trading at 30.8 times PE.

“Serba Dinamik’s prospects remain relatively robust, backed by the outstanding orderbook of RM18.7 billion that represents 4.1 times orderbook cover ratio against FY19 revenue of RM4.5 billion.

“This will provide long-term earnings visibility until 2023,” he told The Malaysian Reserve.

Leong has a ‘Buy’ call on Serba Dinamik with a target price of RM2.41.

He said the downside risk includes lower than expected orderbook replenishment for FY21 forecast at RM4 billion.

A firmer ringgit against the US dollar could affect the group’s bottom line as it will have a negative impact on the group’s earnings and vice versa, with the majority of existing orderbooks deriving from overseas, he added.

Shares of Serba Dinamik closed one sen higher at RM1.73 yesterday, valuing the firm at RM5.8 billion.

Among the companies controlled by CEO Datuk Dr Mohd Abdul Karim Abdullah, Serba Dinamik’s share price performance is well below that of KPower Bhd (previously known as Kumpulan Powernet Bhd) and Sarawak Consolidated Industries Bhd that have rallied in the past two months.

Early this month, Serba Dinamik announced plans to raise RM515.35 million from the issue of 336.83 million new shares.

The company intends to use RM100 million of the proceeds for the repayment of RM626.99 million worth of borrowings, while another RM100 million will be used as capital expenditure for its Teluk Ramunia Yard in Johor.

Another RM303.46 million from the proceeds will be used for two projects in Abu Dhabi.

Serba Dinamik’s net profit rose to RM148 million in the third quarter ended Sept 30, 2020 (3Q20) from RM113.16 million in the same period last year.

Revenue for the quarter increased to RM1.48 billion from RM1.04 billion a year earlier due to strong activities from the operation and maintenance (O&M) segment.

Its O&M business contributed 83.7% of revenue in 3Q20 due to higher activities from its maintenance, repair and overhaul division in the Middle East region such as Qatar, Oman and Bahrain, as well as Malaysia.

Inspection, repair and maintenance activity grew 17.9% year-on-year (YoY) in the quarter.

Inter-Pacific Research Sdn Bhd analyst Daryl Law Shih Shion said the company’s forward earnings are expected to grow with the commencement of Serba Dinamik’s large engineering, procurement, construction and commissioning (EPCC) projects such as the four-year long Block 7 Innovation Hub project in Abu Dhabi worth RM7.71 billion.

He said the project is now at its final engineering design phase and should be completed by 1Q21. The construction is expected to begin in 2Q21, with earnings contribution peaking in 2022 and 2023.

“The project makes up 40% of the total orderbook value of RM18.5 billion. Works on the RM1.47 billion data centre project in Abu Dhabi are expected to contribute to strong earnings growth as soon as construction works begin by the first half of 2021, after the initial design and engineering planning phase of six to nine months that is currently being worked on,” he said in a note recently.

He said Serba Dinamik’s existing O&M contracts have strong renewal rates of 80%-90% and will provide support to earnings despite the unfavourable near-term prospects for the oil and gas industry.

Over the medium term, the management is optimistic on seeing improvements in order flows in light of the vaccine news and maintains a 10%-15% YoY target earnings growth rate, he noted.

Construction of the Bintulu Integrated Energy Hub was completed and expected to begin operations in November.

Meanwhile, the group’s Pengerang Eco-Industrial Park facility is nearing completion and is targeted to be completed by 1Q21, Law added.

The Teluk Ramunia Yard — with the capacity to perform steel fabrication of offshore platforms and structures of up to 50,000 tonne and an orderbook of RM120 million to RM200 million — will allow Serba Dinamik to improve operating margins by streamlining its operations, expand its EPCC capabilities and allow for more competitive bidding of projects, Law stated.