Despite the challenging environment in 2QFY20 given the rise of Covid-19 cases and enforcement of lockdowns globally which led to a significant disruption in operations, Serba Dinamik (Serba) still reported a healthy performance with earnings growing 13.3% YoY to RM147.8m. This is in tandem with a 26.3% YoY increase in revenue to RM1.4bn attributed to higher contribution from its O&M segment (+25.7% YoY) on higher activities from MRO activities in Middle East region such as UAE, Qatar and Oman. Cumulatively, the Group’s 1HFY20 earnings gained 16.1% YoY to RM281.6m in 1HFY20. The numbers were inline our and consensus full-year estimates accounting for 50.6% and 49% respectively. We keep our FY20F-22F forecasts unchanged in anticipation of earnings remaining stable on the back of its strong outstanding orderbook of ~RM18.5bn. For 3QFY20, we are expecting slightly weaker sequential earnings given the seasonally low activities in the Middle East region and Laos, the latter due to monsoon. Nonetheless, activity will pick up in 4QFY20. We reiterate our Outperform rating on Serba with an unchanged TP of RM2.45 based on an ~13x PE multiple over FY21 EPS.

• Results highlight. 2QFY20 topline grew by 12.5% QoQ to RM1.4bn on higher contribution from O&M and ICT segment. Subsequently, earnings for the quarter jumped by 10.6% QoQ to RM147.8m. O&M segment gross profit increased by 8.3% QoQ as some countries like Qatar, Oman and Malaysia showed more activities. Meanwhile, ICT segment gross profit surged to RM15.2m from RM4.3m in 1QFY20 attributed to more work performed in UAE in relation to the Extended Reality training applications. Overall, the Group’s profit margins remain stable at 18% and 12% at the gross and pre-tax levels as of 1HFY20.

• All-time high orderbook. The recent contract award in Abu Dhabi worth RM1.5bn represents the 4th round of contract awards for this year and its 2nd big win (singular contract) after the large RM7.7bn contract announced earlier. With that award, Serba’s YTD wins jumped to RM10.9bn, lifting the current order book to historical high of RM18.5bn. This translates to 4.1x of FY19 revenue. Management’s target of an RM15bn balance orderbook at the end of 2020 appears to have been accomplished currently. However, we do not rule out the Group securing even more than what it has now given its strong presence globally and commendable track record.

• Dividend. The Group declared second interim single tier dividend of 1.3sen, making up total dividend declared thus far this year to 2.5sen. This is in line with our full year target of 5sen.

Source: PublicInvest Research - 26 Aug 2020