Serba Dinamik (Serba) announced its maiden batch of contract wins in 2019 totalling US$110m (RM448m). The announced values consist only of the international contracts (UAE, Uzbekistan and Qatar) as the Malaysian contracts are all call-out in nature. We make no changes to our earnings forecasts as this falls within our FY19 replenishment target. Maintain BUY and target price of RM4.70.

3 International Contracts

The 3 international contracts are all O&M in nature, from UAE, Uzbekistan and Qatar. We understand that the UAE contract is for a new client, while the Qatar contract from Process Dynamics, an existing client, is for a new scope of work. Serba has successfully penetrated into Uzbekistan, securing its maiden contract in the country. We understand that the international contracts have gross margins at c. 15-20%, in line with the historical trend.

Key Highlights From Malaysian Batch of Contracts

Of the 6 contracts secured in Malaysia, the main highlight were the 2 onshore maintenance, construction and modification (MCM) jobs secured from Petronas Carigali. Both these packages cover Sarawak Gas in Bintulu and Sarawak Oil in Miri, spanning 3 years with options to renew for a further 2 years. Based on our channel checks, the cumulative value for these 2 contracts are in the range of RM500m.

Bullish on Group Prospects

This batch of contracts puts the latest orderbook at RM8.3bn (O&M: RM6bn, EPCC: RM2.3bn). To sum up, we are positive as Serba continues to showcase its strong capability in penetrating new regions and securing the new onshore MCM work scope. We make no changes to our earnings forecasts as these contracts fall under our FY19 replenishment target of RM3bn.

Maintain BUY

We reaffirm our BUY rating and keep our 12-month target price unchanged at 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 - 13 Feb 2019