Serba Dinamik (Serba) secured five new contracts, with three are ICT related projects in India and two O&M projects, each in Malaysia and Indonesia collectively worth around RM420m. We are encouraged over this announcement as it highlights the Group’s capabilities in expanding its orderbook’s portfolio while strengthening its presence in the country. With these contracts, Serba’s orderbook increased slightly by 1.1% to RM18.9bn. We make no changes to our forecasts as these make up part of our order book replenishment assumptions. Therefore, our TP of RM2.37 based on PE multiple of 12.8x over FY21 EPS of 18.5sen remains unchanged. Our Outperform rating on Serba is affirmed.

• The contracts. This represents second batch of contract award in 2021 with four out of five contracts are international based. Three contracts are information, communication & technology (ICT) related project in India and one in operations and maintenance (O&M) project in Indonesia, with total value for these four projects are RM408.8m. There is one local contract in O&M segment specifically for rotating equipment maintenance services for Petronas LNG Complex. We estimate the value could be around RM10m – RM20m though potentially to have more as the work orders on the O&M contract will be based on the call-out basis. The contracts lifespan varies, up to 2036 completion. These projects are estimated to yield 17% profit margin at the gross level. Project Details in table 1.

• Orderbook increase slightly to RM18.9bn. Together with the first contract award earlier in January, Serba has successfully secured a total of RM968m worth of projects YTD, increasing its orderbook balance slightly to RM18.9bn. The orderbook remains historical high with earnings visibility up to 3 years based on FY20’s revenue. Serba’s EPCC segment make up 47% of total orderbook, followed by O&M 42% and ICT 11%. Though there is no specific value on orderbook target for FY21, management remains optimistic to grow its orderbook or at least to maintain its balance orderbook at the end of 2021. We think this is not an issue given Serba’s strong footprint globally, sustain good relationship with clientele and commendable track record in project execution.

Recall, the Group has exceeded its FY20 year-end orderbook target of RM15bn despite the global economy downturn due to Covid-19 outbreak. We foresee the momentum to continue towards 2021 in line with progressive improvement in oil and gas industry as well as its expansion in ICT business. Latest private placement resulted in a net gearing reduction of 0.3x from close to 1x, providing rooms for orderbook expansion with greater flexibility for project execution.

Source: PublicInvest Research - 10 Mar 2021