Serba Dinamik’s 3Q18 net profits to drop on slower works in Middle East
KUCHING: Serba Dinamik Holdings Bhd’s ( Serba Dinamik) net profits for its upcoming third quarter of 2018 results (3Q18) are expected to decline by 20 to 30 per cent or circa RM70 to 80 million due to the seasonality of slower operation and maintenance (O& M) works in the Middle-East during summer months.
According to Kenanga Research, the O& M works are expected to slow down by rough a third, especially in the Middle-East which is the group’s stronghold and has contributed to 70 per cent of the group’s 1H18’s revenue.
“Nonetheless, this still represents a positive year over year ( y- o-y) growth within the range of 3 to 18 per cent for 3Q18 from RM68 million in 3Q17, and cumulative 9M18 growth of 16 to 20 per cent from 9M17 of RM229.5 million, which we think is still commendable in its own right,” said the research arm.
While it is concerning that the group is so heavily reliant in one region, Kenanga research guides that the company is seeking to change this by increasing its presence in newer markets such as in central Asia, Africa and America, and also in markets aside from the O& G industry, such as power or water-related projects.
Despite the expected dampened 3Q18 numbers, Serba Dinamik’s earnings forecasts are still deemed intact and Kenanga Research maintains their earnings forecast of RM386.8 million and RM435.2 million for FY18 and 19 respectively.
This is still one and 8 per cent lower than consensus estimates.
The research arm believes the seasonally weaker 3Q18 will be offset by the seasonally stronger 4Q given the increase in oil product ahead of the winter months, coupled with the frontloading O& M activities before year- end.
“Serba Dinamik’s forward earnings are buoyed by its orderbook of RM7.5 billion – its highest ever in record, on the back of year to date ( YTD) new contract wins of RM2.5 billion.
“Of the RM7.5b order-book, we reckon most of it, roughly RM5 billion, is from O& M, which is expected to be recurring in nature, while the remainder of circa RM2.5 billion is from EPCC works,” added the research arm.
All in, the research arm is maintaining it‘s ‘outperform’ call on the stock with an unchanged target price of RM4.45.
They continue to be optimistic on the stock due to its consistent and commendable track record of earnings growth delivery, dynamic expansions into new markets, and superior ROE among its peers.