Serba Dinamik (Serba) announced its largest batch of contract wins since listing with a total of 13 contracts. Among these, 4 are international jobs with a combined value of RM512m; while 9 are from Malaysia which are on call-out in nature. Serba continues to be our high-conviction O&G top buy idea. Maintain BUY and target price of RM4.70.

Combined International Contracts of RM512m

All 4 international jobs are O&M in nature, which comprised of i) 1-year contract from Halul Offshore Services from Qatar, ii) 1-year contract from Al-Meer Technical Services from Kuwait, iii) 2-year contract from Midad Industrial Services from Saudi Arabia, and iv) 2-year contract from Sumtech Multiline from UAE. Based on our understanding, contracts (iii) and (iv) made up the bulk of the value due to their longer contract tenures. All of these contracts awarded are Serba’s existing clientele.

Brief Details on Malaysia Contracts (for More Details See Figure 1)

Out of the 9 O&M contracts secured, 6 were awarded from Petronas group while the other 3 are from Sapura E&P, PS Terminal Sdn Bhd (JV between Petronas Dagangan and Shell Timur Sdn Bhd), and JX Nippon. Most of these contracts have 2-3 years contract tenures.

Target Achieved; RM0.3bn Away From Management Target

Inclusive of these, ytd new contract wins amounted to RM2bn, which has achieved our orderbook replenishment estimate for 2018. The current total outstanding order book now stands at RM7.2bn, comprising of O&M– RM5bn and EPCC– RM2.2bn. Management remains confident in achieving its RM7.5bn order book target by end-2018.

Maintain BUY; 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. We expect stronger earnings momentum in 2H18 to be a near-term catalyst. We maintain our BUY rating and 12-month TP of RM4.70, based on 14x 2019E EPS. Key downside risks include: 1) unforeseen delays in the client maintenance schedule, 2) non-renewal of O&M contracts and 3) margin deterioration.

Source: Affin Hwang Research - 26 Oct 2018