Serba Dinamik’s (Serba) 2Q18 net profit of RM102.7m (+24% yoy) was in line with expectations. Growth was underpinned by the stronger O&M segment as activities in the UAE, Qatar and Malaysia increased. CSE Global which was acquired in April-18 has started contributing to the bottomline, which should provide more upside moving forward. A DPS of 2.15sen was declared (in line with its 30% payout ratio). We maintain our BUY rating and TP of RM4.70.

Results Were in Line

Serba’s 2Q18 results tracked within our and consensus expectations at 49% and 51% of our respective full-year estimates. Serba’s 2Q18 revenue came in at RM804m (+10% qoq, +24% yoy) and net profit at RM103m (+11% qoq, +24% yoy). PBT margins for the O&M and EPCC segments remained relatively stable at 18% and 16%, respectively.

UAE, Qatar and Malaysia Driving Growth in 2Q

UAE’s contribution to total revenue in 2Q18 has increased from 7% to 22% yoy driven by higher works from Agility Energy. Malaysia’s revenue increased by 5ppts to 29% attributed to higher plant turnaround activities in this region. The higher call-out activities from Qatar also helped lift overall revenue.

Stepping Up Its Game Via Digitization

Serba recently collaborated with Microsoft Malaysia to digitize its O&M services by providing the HoloLens and Azure cloud computing platform. This would enable clients to get a real-life technical update from Serba regardless of location, which would help reduce the asset downtime, increase productivity and lower costs. Serba will be spending RM2m in 3Q in this pilot programme, starting with Muaro Jambi CNG plant in Indonesia.

Maintain BUY With Unchanged RM4.70 Target Price

Serba continued to demonstrate its ability to deliver promising results, underpinned by its RM6.9bn orderbook. We maintain our BUY rating and 12-month TP at RM4.70, based on 14x FY19E EPS. Key risks include: 1) unforeseen delays in the client maintenance schedule, and 2) margin deterioration.

Source: Affin Hwang Research - 30 Aug 2018