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Thursday, August 30, 2018

Serba Dinamik Holdings Berhad - Beating Estimates

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Serba Dinamik (Serba) reported a strong set of 2QFY18 results as both revenue and net profit surged by 24% YoY to RM804.1m and RM102.7m respectively. 1HFY18 numbers are consequently stronger by 21% YoY, with revenue at RM1.5bn and net profit at RM195.4m, the latter above our expectations at 58.1% of our full year forecast but within street estimates. The impressive performance was derived from the operations and maintenance (O&M) segment, with most contribution seen in maintenance, repair and overhaul (MRO) activities notably in Middle East and Malaysia. We lift our FY18-20 estimates by +23% on average to account for higher progress billings in its O&M segment on the back of its solid RM4.6bn order book. Engineering, procurement, construction and commissioning (EPCC) order book stands at c.RM2.3bn meanwhile. We reckon the Group’s 3QFY18 earnings will be slower but pick back up in 4QFY18 due to seasonal factors. An interim dividend of 2.15sen was declared in line with the higher profit achieved. We reiterate our Outperform rating with a higher TP of RM4.69 (14x PER over EPS19) after the earnings adjustment. Serba is maintained as our top pick for the sector.
  • Higher O&M recognition to mitigate the shortfall in EPCC. 2QFY18 results were largely contributed by Serba’s O&M segment as activities picked-up in the Middle East region. Revenue and EBIT grew by 34.2% and 31.8% YoY respectively. These were more than enough to counter the shortcomings in the EPCC segment which saw revenue fall 27.9% YoY and EBIT by 36.7% YoY. Overall, PBT and net profit margins are stable at 12% - 13% levels.
  • Earnings forecast. We revise our FY18-20 earnings estimates upward by 23% on average after projecting higher progress billings mainly from the countries which contain more oil and gas reserves especially in the Middle East. Our forecasts are now adjusted to RM394.8m, RM492.3m and RM563.3m respectively, translating to an average growth of 22%. Gross and net profit margins are expected to remain stable at 17% and 12% level respectively.
  • Outlook to remain robust. Serba is our top pick for the sector given its core competencies, good delivery track record and resilient performance even during the low oil price environment, strongly supported by its core activities in the O&M and EPCC segments. Earnings outlook remains solid backed by its strong outstanding orderbook in hand of RM6.9bn (O&M: RM4.6bn, EPCC: RM2.3bn), providing earnings visibility for the next 3 years. YTD, the Group has successfully secured a total of RM1.6bn worth of contracts, and is on track to meet its target of RM7.5bn orderbook by end of FY18. We remain optimistic on the Group’s growth prospects underpinned by increased demand for asset maintenance and EPCC works on the back of stable crude oil prices. In addition, the synergies built up from its M&A exercises will further strengthen its fundamentals.
Source: PublicInvest Research - 30 Aug 2018

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