Serba Dinamik (Serba) reported 2017 revenue and PATAMI growth of 25% and 26% yoy, respectively. 4Q17 PATAMI was lower by 17% yoy due to higher-than-expected taxation, but the results were still within our and consensus forecasts. Serba declared a 1.6sen dividend for 4Q17, bringing the full-year 2017 DPS to 6.8sen (30% payout ratio). Maintain BUY with an unchanged RM4.20 target price.

Another Record Year

Serba’s 4Q17 revenue rose by 9% yoy to RM797m as O&M and EPCC revenue grew by 6% and 25%, respectively. This brought full-year revenue to RM2,712.8m (+25% yoy). 2017 PATAMI of RM310m was in line with our and consensus estimates, comprising 95% and 100% of our respective forecasts. O&M and EPCC segment make up 86% and 14% of total group FY17 revenue. In terms of geographical breakdown, Middle East continue to be the highest revenue contributor at 60%, followed by Malaysia at 32%.

4Q Result Analysis

Sequentially, the increase in PATAMI was in tandem with revenue, which increased 18% and 22%, respectively. Both O&M and EPCC segments recorded 18% and 47% growth in revenue, with operating profit up 23% and 52% respectively. Operating margins for both segments were stable qoq at 18.1% and 16.5%.

Look Past the Tax Impact, Operations Further Improved in 4Q17

Recall that IRB conducted a tax audit in 2017 for the assessment years 2010-15, which resulted in additional tax payable of RM45m. Of this, c.RM15m was recognised and paid in 3Q17, while the remainder was to be paid over 18 months (6 quarters) and recognised as and when it is paid. However, the auditor has overruled an earlier decision and insisted that the remainder be recognised in 4Q17. Hence, we see this slight dip in the results as a one-off event.

Maintain BUY; No Change to TP

We make no changes to our EPS forecasts, as the higher-than-expected tax was a one-off event. We maintain our BUY call with an unchanged 12- month target price of RM4.20, based on 14x FY18E EPS. Downside risks: an unforeseen operational hiccup or delays in the client maintenance schedule.

Source: Affin Hwang Research - 27 Feb 2018