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Wednesday, November 28, 2018

Serba Dinamik Holdings Berhad - 3QFY18 As Expected

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Serba Dinamik (Serba) reported a stronger set of 3QFY18 results as both revenue and net profit increased by 17.9% and 22.3% YoY. This has resulted in the Group’s 9MFY18 numbers remaining strong, with revenue surging by 20.3% YTD to RM2.3bn. In tandem with higher revenue, the Group reported a net profit of RM278.6m (+21.4% YTD), in-line with our and consensus expectations at 70.6% and 71.0% of full-year estimates respectively. The better numbers were mainly derived from the operations and maintenance (O&M) segment, with most contribution seen in maintenance, repair and overhaul (MRO) activities notably in the Middle East region. Margin-wise, the Group has maintained its pre-tax profit margin at 13%. We are leaving our forecast unchanged with anticipation that the Group will deliver stronger results in 4Q on the back of its solid orderbook c. RM7.5bn. An interim dividend of 1.65sen was declared, making up total dividend declared thus far this year to 5.7sen – 70% of our DPS forecast of 8.1sen. We reiterate our Outperform rating on Serba with an unchanged TP of RM4.69 based on 14x PER over EPS19 of 33.5sen. Serba is preferred amongst oil and gas players within our universe given its defensive business nature with stable earnings streams.
  • Lower QoQ. The Group has reported lower results QoQ with revenue and net profit dropping by 4.2% and 19.0% to RM770.2m and RM83.2m respectively. The drop is largely anticipated however given slower O&M activities from the Middle East region particularly Saudi Arabia, Qatar, Oman, and Turkmenistan.
  • But earnings to pick up in 4Q from resumption in work flows, underpinned by its healthy order book on hand of RM7.5bn. Gross, pre-tax and net profit margins are expected to remain stable at 17%, 13% and 12% level respectively.
  • What to expect next year? Earnings outlook beyond FY18 remains promising backed by its strong outstanding order book in hand of RM7.5bn, providing earnings visibility over the next 3 years. YTD, the Group has successfully secured a total of more than RM2.3bn worth of projects with the bulk in the O&M business. We remain optimistic on the Group’s growth prospects despite increased volatility in oil prices given its defensive business nature. In addition, the synergies built up from its M&A exercises will further strengthen its fundamentals.
Source: PublicInvest Research - 28 Nov 2018

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