2019 Order Book Target Achieved

Serba Dinamik (Serba) announced the contract award of 2 international jobs worth US$163m (RM683m) and 3 local contracts which value was not disclosed. This brings year-to-date contract win value to RM3.3bn and current orderbook at RM9.7bn, meeting management’s internal target of RM10bn by end-19. We maintain our BUY call and RM5.50 target price.

Bagged New International Clients

Serba secured a Turkmenistan EPCC contract from state concern Turkmengas to deliver supplementary equipment and automation (SCADA) for 214km gas pipelines. It was also awarded a 3-year O&M contract from Revenue International LLC based in Oman related to the maintenance of pumps, compressors and rotating equipments. All of these are new clients secured.

2 O&M and 1 EPCC Contracts

Serba was also awarded 2 O&M contracts in Malaysia – both are for 3+1 year period for SEA Hibiscus and Petronas Group. While no individual contract value was announced, based on our channel checks, we estimate Petronas’ umbrella contract to be valued at a sizable RM5bn, which will be shared among 5 panel contractors. For the EPCC contract, Serba will be providing Basic & detailed Engineering, Procurement, Construction and Commissioning (BEPCC) for ABF third boiler project for Asean Bintulu Fertilizer located in Bintulu, Sarawak, which we estimate a contract value in the range of RM50m.

New Wins Lift Order Book to RM9.7bn

Inclusive of the international contracts win, ytd contract wins now total RM3.3bn, lifting current outstanding orderbook to RM9.7bn (O&M: RM5.8bn, EPCC: RM3.9bn). The new contracts win has exceeded our earlier replenishment target of RM3bn. We see potential room for earnings upgrade in FY20 if Serba managed to secure more jobs by end-19. Taking into consideration the umbrella contract, we believe current order book has already exceeded management’s internal target in 2019.

Maintain BUY

We make no changes to our earnings forecast as the replenishment assumption is within expectation. 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 - 17 Oct 2019