Despite US-Middle East tensions, demand to remain firm for Serba Dinamik
KUCHING: Despite heightened tensions between the US and the Middle East, analysts believe that demand for Serba Dinamik Holdings Bhd’s (Serba Dinamik) oil and gas (O&G) operation and maintenance services will remain firm.
“Even though 61 per cent of Serba Dinamik’s first nine months of the financial year 2019 ( 9MFY19) revenue stems from the Middle East, the group does not have any operations in Iran or Iraq,” the research team at AmInvestment Bank Bhd (AmInvestment) pointed out in a report.
It viewed the six per cent drop in share price since last week, as opportunities for investors to further add to their positions.
Furthermore, it noted that US President Donald Trump has indicated signs of de-escalation of hostilities, saying that Iran “appears to be standing down” after firing missiles at Iraqi air bases
housing US forces in Iraq which did not result in any US or Iraqi casualties while the bases suffered only minimal damage, based on initial assessments.
“Given the high investments by local, US and European companies in the Middle East, we expect demand for operation and maintenance activities, which are Serba Dinamik’s bread and butter, to remain firm,” it added.
AmInvestment also noted that while the Iran-backed Houthi drone attack in Saudi Arabia in September last year did not lead to significant new orders for Serba Dinamik, it remained optimistic that its current established presence in Saudi Arabia, which accounts for five per cent of Serba Dinamik’s 9MFY19 revenue, will continue to garner additional job scope.
“Recall that the group grew at above-peer revenue growth of 37 per cent for 9MFY19, largely driven by operations in Malaysia (up 42 per cent YoY) followed by the Middle East region (up 26 per cent YoY) that caused its share of revenue to decrease to 61 per cent in 9MFY19 from 64 per cent in 9MFY18.
“Since the beginning of 2019, the group has secured fresh contracts that have raised Serba Dinamik’s outstanding order book by 33 per cent year-on-year (y-o-y) to RM10 billion currently – already reaching 2019 year-end target.
“For FY20F, management is aiming for topline and earnings growth of 10 to 15 per cent, supported by an even more ambitious order book target of
RM15 billion (up 50 per cent y-oy),” AmInvestment said.
Meanwhile, it noted that despite the rise in Serba Dinamik’s net gearing to 0.7folds in 3QFY19 from 0.5-folds in 1QFY19, and could reach 0.8-folds by the end of the year may lead to an equity-raising exercise in the form of perpetual securities or private placement, it expected the EPS impact to be mitigated by value-accretive new order intakes.
All in, AmInvestment maintained a ‘buy’ call on the stock.