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PublicInvest Research Company Update Wednesday, March 10, 2021 KDN PP17686/03/2013(032117) SERBA DINAMIK HOLDINGS BERHAD Outperform

DESCRIPTION Bags Five New Contracts

An energy services group providing engineering solutions to the O&G and power generation industries with Serba Dinamik (Serba) secured five new contracts, with three are ICT related operational facilities in Malaysia, Indonesia, United Arab projects in India and two O&M projects, each in Malaysia and Indonesia Emirates (UAE), Bahrain and United Kingdom (UK). collectively worth around RM420m. We are encouraged over this

announcement as it highlights the Group’s capabilities in expanding its Target Price RM2.37 orderbook’s portfolio while strengthening its presence in the country. With these Current Price RM1.83 contracts, Serba’s orderbook increased slightly by 1.1% to RM18.9bn. We Upside +29.5% make no changes to our forecasts as these make up part of our order book Market Main replenishment assumptions. Therefore, our TP of RM2.37 based on PE multiple Sector Oil & Gas of 12.8x over FY21 EPS of 18.5sen remains unchanged. Our Outperform Bursa Code 5279 rating on Serba is affirmed. Bloomberg Ticker SDH MK Shariah-compliant Yes § The contracts. This represents second batch of contract award in 2021 with four out of five contracts are international based. Three contracts are SHARE PRICE CHART information, communication & technology (ICT) related project in India and 2.00 one in operations and maintenance (O&M) project in Indonesia, with total

1.90 value for these four projects are RM408.8m. There is one local contract in O&M segment specifically for rotating equipment maintenance services for 1.80 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 1.70 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 1.60 margin at the gross level. Project Details in table 1.

1.50 § Orderbook increase slightly to RM18.9bn. Together with the first 1.40 contract award earlier in January, Serba has successfully secured a total of Sep-20 Oct-20 Nov-20 Dec-20 Dec-20 Jan-21 Feb-21 RM968m worth of projects YTD, increasing its orderbook balance slightly

to RM18.9bn. The orderbook remains historical high with earnings visibility 52 Week Range (RM) 1.02 – 2.09 up to 3 years based on FY20’s revenue. Serba’s EPCC segment make up 3-Month Average Vol (‘000) 18,350.0 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 SHARE PRICE PERFORMANCE 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 1M 3M 6M commendable track record in project execution. Absolute Returns 9.6 4.2 11.3 Relative Returns 7.1 3.5 -0.1 Recall, the Group has exceeded its FY20 year-end orderbook target of

RM15bn despite the global economy downturn due to Covid-19 outbreak. KEY STOCK DATA We foresee the momentum to continue towards 2021 in line with progressive improvement in oil and gas industry as well as its expansion in Market Capitalisation (RM m) 6,788.6 ICT business. Latest private placement resulted in a net gearing reduction No. of Shares (m) 3,709.6 of 0.3x from close to 1x, providing rooms for orderbook expansion with greater flexibility for project execution. MAJOR SHAREHOLDERS KEY FINANCIAL SUMMARY % Dato' Dr. Ir. Mohd Abdul Karim 26.1 FYE Dec (RM m) 2019A 2020E 2021F 2022F 2023F CAGR Abdul Kadier Sahib 15.9 Amanah Saham Nasional 6.1 Revenue 4,528.6 6,014.1 6,916.2 7,953.6 9,146.7 19.2% Kumpulan Wang Persaraan 5.2 Operating Profit 691.0 910.5 969.3 1,114.5 1,281.5 16.7%

Pre-tax Profit 544.8 706.3 760.3 877.5 1,012.1 16.7% PATAMI 496.6 611.6 685.3 790.9 912.2 16.4%

EPS (Sen) 13.4 16.5 18.5 21.3 24.6 16.4%

P/E (x) 13.6 11.1 9.9 8.6 7.4

DPS (Sen) 4.2 5.5 5.5 6.4 7.4 Nurzulaikha Azali T 603 2268 3017 Dividend Yield (%) 2.3 3.0 3.0 3.5 4.0 F 603 2268 3014 [email protected] Source: Company, PublicInvest Research estimates E 1 Important disclaimer is provided at the end of this report.| PUBLIC INVESTMENT BANK Page 1 of 4

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Table 1: Contract Details

Segment Country Project Owner Contract Duration

Captive Technology Design, supply, installation, testing, commission and facilitation of 5 Feb 2021 – 4 Feb Solutions Pvt Limited Integrated Adaptive Traffic Management System 2028

3 March 2021 – ICT India Supply and installation of CCTV Surveillance in Vizag Analog and Digital 2 Sept 2021 Labs India Private Limited Supply, installation, implementation and maintenance of Chennai 3 March 2021 – Safe City project 2 March 2027

Installation of Super Ultima II and or Extra Facility Services PT Pilar Bahtera 15 Feb 2021 – Indonesia (FASTRA) Service Project for PLN Customers with a capacity of Energi 14 Feb 2036 15,8 MVA O&M Term contract for Rotating Equipment Maintenance Services for 19 Feb 2021 – Malaysia Malaysia LNG SB Petronas LNG Complex 30 Sept 2022

Source: Bursa Announcement

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KEY FINANCIAL DATA

INCOME STATEMENT DATA

FYE Dec (RM m) 2019A 2020E 2021F 2022F 2023F Revenue 4,528.6 6,014.1 6,916.2 7,953.6 9,146.7 Operating Profit 691.0 910.5 969.3 1,114.5 1,281.5 Other Op. Income 8.4 19.5 1.0 1.0 1.0 Administration Expenses -128.2 -162.8 -207.5 -238.6 -274.4 Pre-tax Profit 544.8 706.3 760.3 877.5 1,012.1 Income Tax -46.8 -74.2 -76.0 -87.8 -101.2 Effective Tax Rate (%) 8.6 10.5 10.0 10.0 10.0 Minorities 1.3 -0.5 1.0 1.2 1.3 PATAMI 496.6 611.6 685.3 790.9 912.2

Growth

Revenue 38% 33% 15% 15% 15% Gross Profit 39% 30% 12% 15% 15% PATAMI 43% 23% 12% 15% 15% Source: Company Prospectus, PublicInvest Research estimates

BALANCE SHEET DATA

FYE Dec (RM m) 2019A 2020E 2021F 2022F 2023F Property, plant and equipment 1,688.6 2,428.5 2,623.4 2,802.5 2,963.5 Inventories 919.6 1,666.8 1,555.7 1,789.0 2,057.4 Trade receivables 1,256.1 1,865.1 2,364.1 2,718.8 3,126.6 Other assets 2,553.7 2,075.9 1,564.1 1,540.6 1,570.2 Total Assets 6,418.0 8,036.3 8,107.4 8,851.0 9,717.7 Borrowings 3,339.5 3,935.0 3,541.5 3,187.3 2,868.6 Trade payables 460.4 531.2 804.2 924.8 1,063.5 Other liabilities 178.2 284.5 435.8 319.7 269.4 Minority Interests 7.2 22.1 1.0 1.0 2.0

Total Liabilities 3,978.1 4,750.7 4,781.4 4,972.6 5,201.0 Total Equity 2,439.9 3,285.6 3,325.9 3,878.4 4,516.6 Total Equity and Liabilities 6,418.0 8,036.3 8,107.4 8,851.0 9,717.7 Source: Company Prospectus, PublicInvest Research estimates

PER SHARE DATA & RATIOS FYE Dec 2019A 2020E 2021F 2022F 2023F Book Value Per Share 0.8 0.9 0.9 1.0 1.2 NTA Per Share 2.1 2.1 2.1 2.3 2.6 EPS (Sen) 13.4 16.5 18.5 21.3 24.6

DPS (Sen) 4.2 5.5 5.5 6.4 7.4 Payout Ratio (%) 31.3 33.3 30.0 30.0 30.0 ROA (%) 7.7 7.6 8.4 8.9 9.4 ROE (%) 20.3 18.6 20.6 20.4 20.2 Source: Company Prospectus, PublicInvest Research estimates

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RATING CLASSIFICATION

STOCKS

OUTPERFORM The stock return is expected to exceed a relevant benchmark’s total of 10% or higher over the next 12months.

NEUTRAL The stock return is expected to be within +/- 10% of a relevant benchmark’s return over the next 12 months.

UNDERPERFORM The stock return is expected to be below a relevant benchmark’s return by -10% over the next 12 months.

TRADING BUY The stock return is expected to exceed a relevant benchmark’s return by 5% or higher over the next 3 months but the underlying fundamentals are not strong enough to warrant an Outperform call.

TRADING SELL The stock return is expected to be below a relevant benchmark’s return by -5% or more over the next 3 months.

NOT RATED The stock is not within regular research coverage.

SECTOR

OVERWEIGHT The sector is expected to outperform a relevant benchmark over the next 12 months.

NEUTRAL The sector is expected to perform in line with a relevant benchmark over the next 12 months.

UNDERWEIGHT The sector is expected to underperform a relevant benchmark over the next 12 months.

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