SERBADK announced a total of 13 new O&M contract wins – 4 in the Middle-east (RM512.17m in value), and 9 local (undisclosed value). We are positive on this, bringing YTD new wins to RM2.2b and orderbook to RM7.2b. No change to earnings as it is still within our replenishment of RM3.0b, while we also expect further contract wins before year-end. Reiterate OUTPERFORM with TP of RM4.45, with it being our TOP PICK within the oil and gas sector.

Thirteen new contracts win. Yesterday, SERBADK announced a total of 13 new operations and maintenance (O&M) contracts awarded: (i) 4 in the Middle-east with combined value of approximately RM512.17m (ii) 9 local contracts with undisclosed value as they are on call-out basis, but our guesstimate is around RM100m in value. Refer to table below for the detailed breakdown of contracts.

Positive on the contract wins. We are positive on the contract wins as it not only signifies SERBADK’s strong footing in the Middle-east, but also demonstrates its competitiveness in the local scene – both of which are their core geographical markets (revenue contribution for 1H18 - Middle-East 70%, Malaysia 28%). Post-award, this brings YTD new contract wins to around RM2.2b, still within our orderbook replenishment assumption of RM3.0b for FY18, and bumping up the group’s orderbook to around RM7.2b. We expect gross margins for the slew of new contracts to be around 17%, in-line with SERBADK’s historical average.

Expecting more contracts until end of year. Despite this recent win, we are still expecting more contract wins from SERBADK to be announced before the close of the year, driven by current tenderbook of roughly RM11b, and while management targets an end-FY18 orderbook of around RM7.5b.

Reiterate OUTPERFORM, with unchanged TP of RM4.45, pegged to 15x PER on FY19E – roughly +1.5SD from its average and c.20% discounted from our oil and gas sector’s average. No changes made to our FY18-19E earnings. We continue to like SERBADK, with it being our TOP PICK within the oil and gas sector, given its; (i) consistent and commendable track record of earnings growth delivery, (ii) dynamic expansions into new markets through inorganic growth, and (iii) superior ROE among its peers – 22% versus sector average of 8%.

Risk to our call includes (i) lower-than-expected orderbook replenishment, (ii) weaker-than-expected margins, and (iii) geopolitical unrest in the Middle-east affecting oil and gas-related activities.

Source: Kenanga Research - 26 Oct 2018