All-over optimism for Serba Dinamik’s maiden 2019 contracts
KUCHING: Analysts across the board gave two thumbs up for Serba Dinamik Holdings Bhd (Serba Dinamik) catching its first batch of contract wins in 2019 totalling US$110 million (RM448 million).
The announced values consist only of the international contracts – United Arab Emiraes, Uzbekistan and Qatar – as the Malaysian contracts are all callout in nature.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that the three international contracts are all operation and maintenance (O&M) in nature.
“We understand that the UAE contract is for a new client, while the Qatar contract from Process Dynamics, an existing client, is for a new scope of work.
“Serba has successfully penetrated into Uzbekistan, securing its maiden contract in the country. We understand that the international contracts have gross margins at circa 15 to 20 per cent, in line with the historical trend,” it highlithed.
Of the six contracts secured in Malaysia, AffinHwang Capital saw the main highlight were the two onshore maintenance, construction and modification (MCM) jobs secured from Petronas Carigali.
Both these packages cover Sarawak Gas in Bintulu and Sarawak Oil in Miri, spanning three years with options to renew for a further two years. Based on channel checks, the cumulative value for these two contracts are in the range of RM500 million
“This batch of contracts puts Serba Dinamik’s latest orderbook at RM8.3 billion. we are positive as Serba continues to showcase its strong capability in penetrating new regions and securing the new onshore MCM work scope.”
In a separate note, Kenanga Investment Bank Bhd (Kenanga Research) was also extremely positive on the contract wins, highlighting Serba Dinamik’s operational competency as well as competitiveness and capabilities in penetrating markets to secure new contracts.
“In fact, the contract in Uzbekistan represents its maiden win in the country, furthering the company’s ambitions of expanding into the Central Asia region,” it said in a separate note.
“Additionally, the two MCM contracts secured from Petronas Carigali also represent the company landing its first “packaged” maintenance jobs, as opposed to facility-specific or specialised maintenance jobs typically.
“Moving forward, we expect more contract wins as management targets its orderbook to reach RM10 billion by end-FY19, providing earnings visibility for at least the next three years,” it observed.
“While the group’s overall jobs replenishment is still reliant on its stronghold markets in the Middle-East and locally, we expect more jobs flow to also come from Central Asia as the company aims to expand into the region.”
Similarly, AmInvestment Bank Bhd believes Serba Dinamik will continue its strong revenue growth this year driven by growing demand in the Middle East and Southeast Asia, spearheaded by the UAE and Qatar.
Most of the growth will be underpinned by Serba’s operation and maintenance services, it added, which account for 85 per cent of the group’s FY18F revenues.
“Even the delay in the commencement of the RM560 million contract to build 60MW hydro power plants within the Temenggor and Belum Forest Reserves in Perak from mid- 2018 to 2Q19 is not expected to have any impact to the group’s FY18F revenue growth of 20 per cent.
Instead, the commencement should have an incremental boost to our FY19F growth assumptions.
“We remain positive on Serba’s O& M business model, which is still actively expanding its long- term recurring earnings profile by strategically leveraging its engineering, procurement, construction and commissioning (EPCC) and ownership platform, similar to Dialog Group.”