Higher O&M earnings underpins earnings for Serba Dinamik

KUCHING: Serba Dinamik Holdings Bhd (Serba Dinamik) financial year 2018 (FY18) revenue and net profit came in within consensus expectations as the group’s results were underpinned by a 25 per cent year over year (y-o-y) growth in its operation and maintenance (O&M) segment revenue growth.

According to AmInvestment Bank Bhd (AmInvestment Bank) in a company results report, Serba Dinamik’s FY18 net profit had risen by 26 per cent y-o-y to RM388 million while its revenue had risen by 21 per cent y-o-y to RM3.3 billion.

“This largely stemmed from the Middle East region that accounted for 62 per cent of FY18 revenue vs. 59 per cent in FY17 and supported by a rapid expansion in Turkmenistan, which surged 71 per cent y-o-y,” said the research arm.

On a quarterly level, 84 per cent of the q-o-q revenue growth was derived mostly from the groups O&M, and to a lesser extent, the engineering procurement, construction and commissioning ( EPCC) division had also contributed as it rebounded by 50 per cent after a lumpy q-o-q decline of 13 per cent in 3QFY18.

Looking ahead, the investment bank guided that its management is expecting this continuation of strong revenue growth in FY18 to continue as demand from the Middle East and Southeast Asia is still growing, led by the UAE and Qatar.

“Most of the growth will be underpinned by Serba’s O&M services, which account for 89 per cent of the group’s FY18 revenues. Our only concern lies in the rising net gearing of 0.45 times as at 4QFY18, from 0.29 times in 4QFY17 due to the group’s expansion programme, which management affirm does not require any equity raising exercise,” said the bank.

In terms of contract wins, Serba’s outstanding orde3rbook now stands at RM7.5 billion, anmd is on track of reaching its target of RM10 billion by end of FY19.

This would translate to an impressive growth of 33 per cent y-o-y should the group manage to achieve this feat.

All in, AmInvestment Bank is maintaining its buy call on the group with an unchanged sum-ofparts based fair value of RM650, while introducing their FY21 forecasted earnings premised on a slower revenue growth assumption of 9 per cent given their enlarged base.

“We remain positive on Serba Dinamik’s O&M business model, which is still actively expanding its long-term recurring earnings profile by strategically leveraging its EPCC and ownership platform, similar to Dialog Group.”