Author: PublicInvest | Publish date: Wed, 13 Feb 2019, 10:48 AM
Serba Dinamik (Serba) announced that it has secured a string of contracts comprising of 6 for the Operations and Maintenance (O&M) segment, 1 for the Engineering, Procurement, Construction and Commissioning (EPCC) segment and 2 straddling both O&M and EPCC segment. Of the 9 projects, 3 which are mainly involved in the O&M space are overseas projects with a total value of c. RM448.1m. The remaining 6 are local projects, though with no specific value disclosed as these are on a “call-out” basis. We are encouraged by these contract wins, reflective of the Group’s continuous ability to replenish its orderbook and ensuring earnings visibility over the next 3 years. Starting off the new financial year on a good note, we expect more to come in subsequent months to help achieve our jobs replenishment target of RM2.5bn. We estimate the Group’s balance orderbook in hand remains strong at >RM7.5bn. Our forecasts are maintained, with TP of RM4.69 unchanged based on a ~14x multiple to FY19 EPS of 33.5sen. Our Outperform rating for Serba is also reaffirmed.
The contracts comprise 6 local-based projects, with the remaining 3 split into 3 different countries – Qatar, Uzbekistan and United Arab Emirates (UAE). The contracts’ lifespans are about 2 - 3 years, ending in 2020 and 2021. Total value of overseas contracts are expected to be around RM448.1m while no value is guided for local projects as the work orders will be awarded at the discretion of the respective clients based on their activity schedules and rates throughout the duration of the contracts. Details of projects as per Table 1.
Orderbook remains strong at more than RM7.5bn. These projects represent the first set of job wins in the FY19. Management has targeted to achieve RM10bn balance orderbook by end of FY19. Inclusive of these contracts, we estimate the Group’s balance orderbook in hand remains strong at >RM7.5bn presently, keeping the Group busy over the next 3 years.
Earnings forecast. We make no adjustment to our estimates as this makes up part of our FY19 order book replenishment assumptions of RM2.5bn – slightly higher than last years’ target of RM2.3bn. With some works having started in Dec 2018, these projects are expected to contribute positively to the Group’s FY19 numbers and beyond.
Results preview. Serba will be announcing its 4QFY18 results on 27th February. Despite reporting lower 3QFY18 numbers due to seasonal factor and meeting only 70% of our forecast, we expect the earnings should pick-up in 4Q on the back of robust O&M activities in the Middle East region particularly Saudi Arabia, Qatar, Oman, and Turkmenistan towards the end of the year. As such, we anticipate 4QFY18 net profit to be in line with our estimates at around RM116m translating to a 39.4% QoQ and 44.1% YoY growth.
Source: PublicInvest Research - 13 Feb 2019