Serba Dinamik (Serba) announced that it has been awarded a batch of contracts worth RM831m, which involve engineering, procurement, construction and commissioning (EPCC) as well as operations and maintenance (O&M) work. This is the first batch of contracts secured in 2018, and we have factored them into our 2018 orderbook replenishment assumptions. Maintain BUY with RM4.20 target price.

EPCC and O&M of 3 Hydro Power Plants in Perak

Within the batch of contracts is the EPCC of 3 hydropower plants in Perak, which had been announced on 6 Feb. The construction period will be 2 years starting April 18 with a value of RM560m. Serba also secured a 21- year O&M contract to maintain the 3 plants. Both the EPCC and O&M work make up around 94% (RM780m) of the total announced contract value.

Remaining 6% Comprises …

1 EPCC and 4 O&M contracts. For the EPCC portion, Serba was awarded a contract by Green and Smart Sdn Bhd to supply, design, fabricate, deliver, install, test and commission a 2.7MW biogas power plant from 8 Feb to 7 Dec 18. The work scope of the 4 O&M contracts include the: (i) rental of tools and equipment, supply of consumables and manpower for Asean Bintulu Fertiliser (28 Nov 17 – 27 Nov 19), (ii) service, repair and overhaul of pumps and motors for Petronas Dagangan terminal (20 Dec 17 – 19 Mar 18), (iii) provision of manpower and tools for planned/unplanned shutdown of Petronas Chemical low density polyethylene plant (15 Jan 18 – 14 Jan 19), and (iv) genset O&M services for Chevron Indonesia's Kalimantan operation (4 Dec 17 – 3 Nov 19).

Maintain BUY

We are positive on Serba as it continues to demonstrate its strong ability to secure new jobs. We make no changes to our earnings forecasts as the contracts are already within our 2018 orderbook replenishment target. Inclusive of these contracts, the total current outstanding orderbook stands at RM6bn (O&M: RM4bn, EPCC: RM2bn). We maintain our BUY call with an unchanged target price of RM4.20 based on 14x FY18E EPS. Downside risks: unforeseen operational hiccup or client maintenance schedule delay.

Source: Affin Hwang Research - 15 Feb 2018