AFFIN Hwang Capital has maintained its buy call on Serba Dinamik Holdings Bhd with a target price of RM2.62 following the company’s announcement of its first batch of contract wins for the year.

The jobs comprise six overseas contracts worth RM321 mil and six domestic jobs on a call-out basis estimated at around RM620 mil.

Affin Hwang analyst Tan Jian Yuan said: “This brings year-to-date contract wins to RM940 mil and its latest order book to RM10.7 bil (management’s internal target stands at RM15 bil by end-2020).”

Most of the overseas contracts secured are from Indonesia with one from Oman. Most are existing customers and the only new customer is from PT Mirah Ganal Energi.

Two of the contracts are short term in nature, targeted to be completed by the first half, while the remaining four provide order book earnings visibility until 2022. Gross profit margins for these jobs are expected to be in the range of 12-15%.

Tan estimates that the aggregate contract values secured from Malaysia are in the range of RM620 mil. “We believe the four plant turnaround packages for three years awarded by Petronas make up the bulk of the value at around RM500 mil. Serba Dinamik also successfully secured two new clients: SapuraOMV and Samalaju Industrial Port Sdn Bhd. Gross profit margins are expected to be similar to the Indonesia contracts at 12-15%,” he adds.

Inclusive of these contracts, Serba Dinamik’s current outstanding order book stands at RM10.7 bil. The operational and maintenance (O&M)/engineering, procurement, construction and commissioning (EPCC) breakdown is at 66%/34% (RM7.1 bil/RM3.6 bil) with 60:40 overseas/domestic split.

“We remain positive on Serba Dinamik’s ability to secure more contracts in the coming days with its tenderbook now at RM16 bil (O&M/EPCC: 60:40), with the Middle East its key market making up half of the tenderbook, 30% from Malaysia and the remainder from Central Asia,” says Tan.

Affin Hwang makes no changes to its earnings forecasts as these contracts fall under the company’s replenishment target for the year. It reaffirms its buy rating and keeps its 12-month target price unchanged at RM2.62, based on a 2020E PER of 14x.

Meanwhile, key downside risks include unforeseen delays in the client maintenance schedule, non-renewal of O&M contracts, EPCC project delays, and margin deterioration. – Feb 5, 2020

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