Serba Dinamik (Serba) announced that it has secured a series of O&M and EPCC contracts, from both local and overseas clients, with a combined value of RM465m. Most of the contracts secured are from Malaysia and Indonesia. This is the second batch of contracts secured in 2018, bringing YTD wins to RM1.3bn – within our replenishment assumptions. We reiterate our BUY call and RM4.70 target price.

Contract Highlights (more Details on Page 2)

Serba secured five Malaysian contracts, five Indonesian contracts and one each for UAE, Bahrain and Kazakhstan, worth RM465m in total. Among these contracts, ten contracts are related to O&M and three for EPCC related works. Serba managed to penetrate into Kazakhstan by securing their maiden contract, and also strengthened its presence in Indonesia by securing five contracts. We believe Agility Energy would be the largest contract within these announcements – a new client secured back in July 2017.

Positive on Serba’s Ability to Secure New Clients

The list of new clients among these contracts include Kinta Switchgear Sdn Bhd, Regno International, Hadid Engineering (M) Sdn Bhd and PT Waskita Karya. The contracts from new clients totalled approximately ~RM165m, which is 35% of the total new contract sum.

Contract Wins Fall Within Expectations

Inclusive of this batch of contracts, the YTD wins add up to RM1.3bn, pushing the total current outstanding order book to RM6.6bn. The O&M portion comprises RM4.6bn, while RM2bn is from EPCC jobs. We make no changes to our earnings forecasts as this falls under our replenishment target of RM4bn (combination of both new and renewals). We are confident that Serba is on track to achieve our replenishment target, as maintenance contracts are high-renewal in nature, while competitively securing new contracts.

Maintain BUY and RM4.70 Target Price

We continue to be bullish on the outlook of the company, underpinned by its success and ability in securing new contracts as well as stronger earnings deliveries expected in the 2H18. We maintain our BUY rating and 12-month TP of RM4.70, based on 14x 2019E EPS. Key risks include: 1) unforeseen delays in the client maintenance schedule, and 2) margin deterioration.

Source: Affin Hwang Research - 26 Jun 2018