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Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Tue, 3 Dec 2019, 4:43 PM

 

Serba Dinamik - Second Contract Wins

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Serba Dinamik (Serba) announced that it has secured one maintenance contract from Qatar and six from Malaysia (one of which is an EPCC contract from Petronas). All of these are at an estimated value of RM500m. With these contracts secured, Serba is one step closer towards achieving its RM10bn order book target by end-19. We reiterate our BUY recommendation and RM5.50 target price.

Qatar Contract Worth US$60m (RM251m)

Serba secured an O&M contract from Qatar from Pavillion Qatar Engineering, whom is a new client. The scope of work differs slightly from its previous Qatar contracts, whereby instead of turbines maintenance, the scope of this contract is related to the repair, overhaul and maintenance of pumps, compressors and gearbox. This contract is for 3 years with a 1 year extension option.

5 Local Call Out Maintenance Contract and One EPCC

Serba secured a total of 6 contracts from Malaysia (refer to Figure 1 for detailed breakdown) which are all from existing clients. Among those, 5 are maintenance in nature and on a call out basis. Serba was also awarded a 3+1+1 year onshore construction and modification work for Petronas. By our estimates, the total value of these contracts are in the region of RM250m.

Positive on RM10bn Order Book Target

These batch of contracts should help lift the current outstanding order book to RM8.7bn (O&M portion at RM6.4bn and EPCC at RM2.3bn). Inclusive of these contracts secured, ytd new contracts win has totaled RM1.5bn, which is still within our FY19 new order book replenishment target of RM3bn.

Maintain BUY

We reaffirm our BUY rating and keep our 12-month target price unchanged at RM5.50, based on 14x 2020E EPS. Key downside risks include: 1) unforeseen delays in the client maintenance schedule, 2) non-renewal of O&M contracts, 3) EPCC projects delay, and 4) margin deterioration.

Source: Affin Hwang Research - 19 Jun 2019

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