The main highlight from our recent Serba Dinamik (Serba) Bintulu site tour was the Bintulu Integrated Energy Hub (BIEH) which left us gaped in awe. The intention to consolidate all three service centres, and with a larger fabricating capacity, would catapult Serba to a higher level, in our view. On this positive note, we raise our earnings forecasts. Reiterate the stock as our sector top pick and target price at RM4.50.

Added a 3rd BSC as a Result of High Job Flow (see Pg. 3)

Serba has rented a third Bintulu service centre (BSC) for 1.5 years to cater to the higher job flow. This will be mainly utilised to service the 5-year onshore maintenance, construction and modification (MCM) contract secured from Petronas Carigali in Feb-19 as well as the Shell MGS contracts. Serba has received approximately RM50m of MCM work orders, expected to be completed by Dec-19. The combined workforce in Bintulu stands at 849 staff (43% contracted, 41% daily remunerated staff, and 16% permanent staff) servicing a total of 21 contracts.

Additional Floor Space Opens Up New Opportunities

The recent expansion into a third BSC is a good sign, as the current capacity is insufficient to cater to the jobs secured. We believe the reallocation to the BIEH next year would be a strong re-rating catalyst as this would allow Serba to bid for more contracts, especially EPCC jobs. Serba’s current outstanding order book of RM8.3bn comprises RM6bn of O&M jobs and RM2.3bn of EPCC jobs.

Long-term Prospects Even More Promising With BIEH

The BIEH targets to achieve physical completion by 10-Dec-19 with the MRO service centre to be completed earlier, by Jun-19. BIEH will consist of an MRO facility, steel fabrication yards and warehouse and storage yards, as well as blasting workshops and 9 factories. BSC No. 1 and 2. currently on rental will be progressively moved to the new site. By our estimates, the massive 30-acre development will double Serba’s current maintenance floor space, and its fabrication capacity by slightly more than that. We are excited over Serba’s next phase of growth on 2 fronts: 1) the consolidation would help improve group operating efficiency and lead to better margins, 2) the increase in capacity would enable Serba to bid for more maintenance and construction jobs in East Malaysia, Brunei, Indonesia and Singapore. Serba is also eyeing for the nine Petronas’ LNG complex turbine maintenance work, which is currently still under OEM.

Source: Affin Hwang Research - 9 Apr 2019