We are positive on SERBADK announcing its first contract wins for the year, which includes: (i) six overseas jobs worth USD78m, and (ii) six domestic jobs with no specific value. Together, we guesstimate the total value at ~RM900m, bringing its order-book to RM10.7b. Maintain OUTPERFORM, with TP of RM2.50, with continued earnings delivery and contract wins to act as catalysts.

First contract wins for the year. SERBADK announced a series of contract wins, which include six overseas contracts worth USD78m (~RM321m), as well as another six domestic contracts with no specific value as they are on a “call-out” basis. Refer to the Bursa announcement for full detailed breakdown of every of the twelve contracts.

Nonetheless, we guesstimate the domestic contracts to be worth ~RM600m in total, thus bringing total contract wins to ~RM900m.

Positive on the contract wins. Overall, we are positive on the contract wins, displaying SERBADK’s continued competitiveness and competencies in job execution. We expect the jobs to fetch around midteens gross margins. The contract award represents SERBADK’s first announced wins for this year, bringing its order-book to RM10.7b (40% local and 60% overseas).

Continued delivery of earnings growth. Moving forward, the group targets an end-FY20 order book of RM15b, and maintain earnings target of high-teens percentage growth for FY20, thus providing possible upsides from our current estimations.

Maintain OUTPERFORM, with unchanged TP of RM2.50 pegged to 15x PER on FY20E EPS. No changes were made to our FY19-20E numbers post-contract win, as the awards are still well within our FY20 order-book replenishment assumption of RM2b. 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 - 5 Feb 2020