This article first appeared in The Edge Financial Daily on March 11, 2020 - March 17, 2020
KUALA LUMPUR: Serba Dinamik Holdings Bhd, whose share price has plunged 20% so far this week, is seeing little to no impact from the oil price crash on its business, says group managing director Datuk Dr Mohd Abdul Karim Abdullah.
“The oil price crash will not impact Serba Dinamik from the aspect of projection on income and profitability that we have put forward previously,” Mohd Abdul Karim told The Edge Financial Daily.
This, he said, is because the group expects maintenance works to still be available in the current market situation — in which Saudi Arabia is opting to increase production and drive prices lower to influence its competitors.
“This is a price war, where Saudi as an oil major is expecting to ramp up production, which will result in more wear and tear, and subsequently more maintenance works,” said Mohd Abdul Karim.
The company has a footprint in the Middle East — the United Arab Emirates, Saudi Arabia and Qatar — which contributed to around 47% of its revenue for the financial year ended Dec 31, 2018 (FY18).
However, Mohd Abdul Karim stopped short of saying Serba Dinamik could expect higher work activities, considering the oil market is very fluid at this point in time.
“In my opinion, the crash could be temporary. It is a lose-lose situation, and all parties will need to come back, sit down, and readjust their respective actions to address their concerns [about] the market,” Mohd Abdul Karim said.
Serba Dinamik currently derives 80% of its top line from the oil and gas (O&G) sector through its two core businesses: operations and maintenance, and engineering, procurement, construction and commissioning (EPCC).
For this year, the group’s target is to increase its outstanding order book to RM15 billion by year end, from the current RM10.7 billion that will last for two years.
On this note, Mohd Abdul Karim expressed confidence that the group should be able to achieve this target.
“While job flows for O&G-related EPCC may slow [down] as a result of low oil prices, we are expecting a sizeable EPCC contract which is not related to O&G, but rather, related to the IT segment,” said Mohd Abdul Karim.
“We are optimistic [about] what we have committed, in terms of our order book target, as we speak now. We will announce [new contract wins] as and when we are allowed under the necessary regulatory requirements,” he added.
Little concerns over margin pressure
Meanwhile, Mohd Abdul Karim also addressed concerns about the margin pressure if the oil price slump is prolonged.
He pointed to the 2014 downturn, which hit its bottom in 2016 when prices fell below US$30/barrel (bbl) and when the 2016 full-year average stood at US$45/bbl.
“From our experience, we were quite lucky at the time as we did not have to enter into any renegotiation overseas, while some of our domestic contracts were called up for price reduction,” said Mohd Abdul Karim.
“And based on that experience, the reduction will not be so sizeable,” he said, adding that the cut at the time was at a low single-digit percentage point.
“If profitability is ultimately reduced in our contracts, we have an existing template from our [initial public offering] days as our guideline, where we take up more contracts and not be so selective in terms of our geographical positioning, compared to our current practice which is very selective,” he said.
Apart from its two core businesses, Serba Dinamik also has footprints in three sectors, namely IT, education and renewable energy.
The group, which is pushing for virtual reality services for technical industries, is targeting its IT segment’s top-line contribution to increase to RM350 million this year, from RM100 million in FY19.
Meanwhile, it is also looking forward to participating in the upcoming large-scale solar bidding, for which the government has underlined a quota of 1,400mw up for grabs this year.