Serba Dinamik (Serba) announced that it has secured an EPCC contract from Uzbekistan worth US$250m (c. RM1.1bn) and 2 O&M contracts from Petronas Carigali. These new contracts helped boost its outstanding order book to RM9bn, on track to achieving the RM10bn target by end-2019. We reiterate our BUY rating and RM5.50 target price.

EPCC Contract From New Client

Serba secured an EPCC contract in Uzbekistan from Hazarasp Chlor Alkali LLC FC valued at RM1.1bn. The EPCC contract is for a 90-ton per day chlorine processing plant and a 26MW/h steam turbine independent power plant. The construction period is for 2 years, and targeted to be completed by August 2021. This is part of Serba’s asset ownership model, in which the group will ultimately be taking an equity stake (~40%), yet to be finalise. We estimate the gross profit margin for the EPCC work to be in the range of 14–16%.

Bagged 2 O&M Contracts From Petronas

Serba also secured 2 O&M contracts from Petronas Carigali. The O&M contracts are for the provision of maintenance services for the Weir gas compressor and Capstone microturbine generator. These contracts are for 1 year and 3 years respectively and began in June 2019. Based on our understanding, these 2 contracts are valued at a combined RM70m.

Total Orderbook Now at RM9bn

The additional contracts secured helped boost Serba’s outstanding orderbook to RM9bn (O&M portion at RM6bn and EPCC at RM3bn). In total, Serba has secured RM2.6bn of new contracts ytd, which is still within our FY19E new orderbook replenishment target of RM3bn.

Maintain BUY

Serba’s current orderbook replenishment trajectory is within our expectations. Hence, we reaffirm our BUY rating and keep our 12-month target price unchanged at RM5.50, based on a FY20E PER of 14x. Key downside risks include: 1) unforeseen delays in the client maintenance schedule, 2) non-renewal of O&M contracts, 3) EPCC project delays, and 4) margin deterioration.

Source: Affin Hwang Research - 14 Aug 2019