SERBADK announced several contract wins, which include: (i) two overseas wins worth USD163m, and (ii) three domestic wins (no specific value), although we guesstimate a value of ~RM100m in total (excluding panel contractor agreement by Petronas). Positive on the new wins bringing its order-book to ~RM9.7b – broadly in-line with management’s year-end target of RM10b. Maintain OP and TP of RM5.25 (ex-TP of RM2.50).

More contract wins announced. Yesterday, SERBADK announced securing a series of contracts, which include two overseas contracts worth USD163m (~RM682.8m), as well as three domestic contracts with no specific value as they are on a “call-out” basis (refer to table below for detailed breakdown of contract wins)

Takeaway from the contract wins. Among the domestic contract wins is one appointment of being a panel contractor by Petronas, for the provision of mechanical rotating equipment services and parts. While this is not a job specific contract per se, it qualifies SERBADK to be able to compete for and secure mechanical rotating maintenance jobs locally.

Excluding this appointment as a panel contractor, we guesstimate the two other domestic contract wins to be worth ~RM100m, thereby bringing the total contract value announced yesterday to roughly ~RM783m. This brings its YTD contract win to roughly ~RM3.2b (broadly in-line with our replenishment assumption of RM3b), and latest order-book to ~RM9.7b (broadly in-line with management’s end-2019 target of RM10b). Note that these figures do not include the panel contractor agreement by Petronas, and hence, any successful work order materialisation from that contract will further boost the order-book.

Overall, we are positive on the new wins, highlighting the company’s job execution capabilities as well as competitiveness in securing new jobs.

Reiterate OUTPERFORM, with unchanged TP of RM5.25 (ex-TP of RM2.50), pegged to 15x PER on FY20E – which is around +2SD from its 2-year mean valuations. Post-announcement, we made no changes to our FY19-20E numbers.

We continue to like SERBADK for having one the best earnings delivery track records within the oil and gas space, coupled with outstanding management and best-in-class ROE against sector peers. Further contract wins and continued earnings delivery would act as catalysts moving forward.

Risks to our call include: (i) lower-than-expected order-book replenishment, (ii) weaker-than-expected margins, and (iii) geopolitical unrest in the Middle-East affecting oil and gas-related activities.

Source: Kenanga Research - 17 Oct 2019