Field Trip to Terengganu

We were hosted at Serba Dinamik's Paka service centre for a day and to see the latest development of Konsortium Amanie’s water treatment plant project. Overall, it has been an educational tour as it allowed us to have an in depth understanding of the technical aspect of Serba’s business as well as a better idea of the purpose and impact of the water treatment project to Terengganu residents. Serba continues to be our small-mid-cap O&G top pick. Maintain BUY with an unchanged 12-month TP of RM2.75.

Strategically Located Paka

For our first stop, we visited the group's Paka service centre which is the nearest rotating machinery facility to Oil and Gas facilities in Kerteh. The centre also serves as a practical training centre for students. At the moment, Serba’s Paka contracts are mostly Petronas Group related works that will span across 2018/19 (Fig 13). We foresee this to be buzzing with more work next year as Petronas’ ethylene and polyethylene plants undergo its plant turnaround in 3Q18.

Progress of Water Treatment Project

Serba has completed the installation of the 3m litre per day (MLD) fiber membrane water treatment plant and already in full operation. For its 28MLD ultra filtration plant, design for the plant has been submitted and land clearing process will start upon approval. Land clearing is expected to begin by Dec17. This project is estimated to make up 33% of its current EPCC order book. Meanwhile, the construction of raw water intake by Salcon Berhad for the future 120MLD and 28MLD water treatment plan is currently ongoing (Fig 11-12). The additional capacity from this project will be able to make up the current shortfall in treated water faced by Terengganu residents until 2030.

Billing Done for 3MLD; to Focus on 28MLD Next

To date, Serba has invoiced ~RM60m to its Konsortium Amanie joint venture company which was for the overall design and installation of the 3MLD plant. Out of which, RM30m has been recognized as revenue in 2Q17. We understand that the sukuk which will be raised at the joint venture level is still ongoing and soon to be finalized.

Maintain BUY and Our Target Price

We make no changes to our earnings forecast. Maintain BUY with unchanged TP of RM2.75 based on 11x FY18E EPS. Key risk: unforeseen maintenance delays.

Source: Affin Hwang Research - 9 Oct 2017