Serba Dinamik’s prospects to grow EPCC segment remain promising

KUCHING: Serba Dinamik Holdings Bhd’s (Serba Dinamik) prospects to grow the group’s EPCC segment remain promising with ample hydropower and utilities projects up for grabs, analysts say in a company update.

According to Affin Hwang I nvestment Bank Bhd (AffinHwang Capital), earnings growth from Serba Dinamik’s engineering, procurement, construction and commissioning (EPCC) segment next year should mainly come from the group’s Terengganu water treatment plant ( approximately RM235 million outstanding EPCC value), Tanzania chloro-alkali plant ( approximately RM315 million), Laos 30 megawatt (MW) power plant ( approximately RM275 million) projects ( all with small equity investments) and UAE’s New Thunder project (approximately RM100 million).

“The construction of a 60MW hydropower project in Perak will likely see a slight delay, now targeted to start construction in early third quarter of 2019 (3Q19), while the recently invested liquefied natural gas ( LNG) project is on track to commence construction in 4Q19,” the research firm said.

AffinHwang Capital also noted that based on the latest Petroliam Nasional Bhd (Petronas) 20192021 Activity Outlook, the outlook for plant turnaround activities has turned bullish, revising from 3.5 million man hours to 8.1 million man hours.

“This translates to an incremental 4.6 million additional man hours which is positive as plant turnaround also yields higher margins compared to other operations and maintenance (O&M) jobs.”

The research firm highlighted that this could potentially boost contribution from Malaysia, leading to upside potential to its financial year 2019 estimate (FY19E) earnings.

It said out that contribution from Malaysia was at 29 per cent as at 3Q18.

“The Middle East (UAE, Saudi Arabia and Qatar) and Central Asia (Africa) remain the few key regions with more available O&M jobs in 2019.”

Overall, in AffinHwang Capital’s view, the recent drop in Serba Dinamik’s share price provides a good opportunity to accumulate the stock, on the expectation of stronger growth prospects in terms of earnings delivery and orderbook replenishment.

“The group’s fundamentals remain solid as earnings continue to grow strongly and more contracts being announced pushing the current outstanding order book to RM7.5 billion.

“We expect Serba Dinamik to record a 23 per cent earnings per share (EPS) growth in 2019E premised on a stronger EPCC recognition, and supported by a more robust O&M activities.”