SERBADK has secured eleven new contracts (nine overseas, two local), amounting to ~RM558m. We are positive on the new wins, reflecting the group’s competitive and technical capabilities. This brings its order-book to RM18.7b, of which ~40% is from oil and gas. Maintain OUTPERFORM, with TP of RM2.50.

Eleven new contracts. SERBADK announced that it has secured a total of eleven new contracts, consisting of: (i) nine overseas contracts, with a combined estimated contract value of approximately USD135.8m (or ~RM548.2m), and (ii) two local contracts, with no specific values as they are on a “call-out” basis (refer to table below for further breakdown of contract details). Nonetheless, we guesstimate the local contracts to be worth ~RM10m, bringing total wins combined to ~RM558m.

Positive on the new wins. We are positive on the contract wins, showcasing SERBADK’s competitive and technical capabilities. These contracts are expected to fetch mid to high-teens gross margins, in line with the group’s historical average. Additionally, most of the Indonesian O&M contracts secured this time round are from the power sector – a reflection of the group shifting reliance away from the oil and gas sector. These are the group’s first wins in FY21, bringing its order-book to RM18.7b – of which only 40% are from oil and gas sector.

Consistent growth track record. Despite the challenging times, we expect SERBADK to continue delivering earnings growth moving forward, backed by its strong and diverse order-book, as well as its global reach coupled with its high job delivery competencies. Based on the group’s track record, SERBADK has been proven to be one of the most resilient names in terms of earnings growth delivery.

Maintain OUTPERFORM, with unchanged TP of RM2.50, pegged to FY21E PER of 15x. Note that our valuations have already taken into account an enlarged share base arising from its upcoming 10% private placement (expected completion by end-1QFY21). No changes to our FY20-21E earnings, as the new wins are well within our FY21 order- book replenishment assumption of ~RM10b.

Given its strong earnings growth outlook, we believe the stock’s current share price level is remarkably attractive.

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 - 19 Jan 2021