Serba Dinamik (Serba) recorded a 1Q18 net profit of RM92.6m (+18.3% yoy), which was in line with both our and consensus forecasts. This was on the back of higher revenue, driven by stronger O&M and EPCC segments. Serba declared a 1.9sen dividend, which translated to 27% of profit payout. We maintain our BUY call and 12-month TP of RM4.70.

1Q18 Results in Line

Serba’s 1Q18 net profit increased by 18.3% yoy on the back of higher revenue of RM730.8m (+19.3% yoy), driven by both stronger O&M and EPCC segments. EPCC revenue, which rose during the quarter, saw mainly contribution from New Thunder Technical Services (UAE) and Kota Marudu project in Sabah.

Qatar, Turkmenistan and UAE Drove O&M Revenue

The higher O&M revenue (+14.3% yoy) was driven mainly by a few key regions, namely Qatar, UAE and Turkmenistan. Serba continued to benefit from high work activities in Qatar left by contractors who had left the region. 1Q18 also saw a strong boost from UAE (from RM32m in 1Q17 to RM132m), driven by new contract from Agility Energy. The dynamics of O&M revenue is starting to see a shift. In 1Q18, IRM business contributed around 10% of total O&M revenue. This was as low as <4% in 1Q17 and 8% in 4Q17.

Spending on IT Business

Admin expense was higher by RM9.7m yoy mainly due to a payment of RM5m to Yayasan Buku with regards to its IT business. All in, 1Q18 net profit accounted for 23% and 24% of our and consensus forecasts.

Maintain BUY With Unchanged Target Price

We maintain our BUY recommendation and 12-month TP at RM4.70, based on 14x FY19E EPS. We continue to like Serba for its strong earnings visibility backed by a RM6.2bn orderbook and the recent strategic acquisition of CSE Global, which would allow it to further expand its geographical reach. Key risks include: 1) unforeseen delays in the client maintenance schedule, and 2) margin deterioration.

Source: Affin Hwang Research - 23 May 2018