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Affin Hwang maintains ‘buy’ on Serba Dinamik’s EPCC segment


 Serba Dinamik Holding Bhd’s prospect to grow its engineering, procurement, construction and commissioning (EPCC) segment remains promising with adequate potential utility projects in 2019.

In its research report today, Affin Hwang said Serba Dinamik is on track to achieve an orderbook of RM10 billion by end of next year by securing new EPCC contracts and investing in small equity stakes. 

“(As such,) Serba Dinamik remains our country and top sector pick with the target price of RM4.70.

“Meanwhile, the Middle East and Africa remain the few key regions with more available operations and maintenance (O&M) jobs in 2019,” it said.

The research house added that the company’s earnings growth from its EPCC segment in 2019 should mainly come from its water treatment plant in Terengganu, chloro-alkali plant (Tanzania), 30MW power plant projects (Laos) and New Thunder project (the United Arab Emirates).

“The construction of a 60 MW hydropower project in Perak will likely see a slight delay, now targeted to start construction in the early third quarter of 2019 (3Q19).

“(On the other hand), the recently invested liquefied natural gas (LNG) project is on track to commence construction in 4Q19,” it said.

Affin Hwang said that Serba Dinamik – which has been actively pursuing new projects in Indonesia, Laos and Vietnam – has 120 MW of assets in its portfolio. 

“The group’s fundamentals remain solid as earnings continue to grow stronger and more contracts being announced pushing the current outstanding order book to RM7.5 billion.

“We expect Serba Dinamik to record a 23% earnings per share (EPS) growth in 2019 premised on a stronger EPCC recognition, and supported by a more robust O&M activity,” it said.

It added that the recent drop in Serba Dinamik’s share price provides a good opportunity to accumulate the stock, on the expectation of stronger growth prospects in terms of earnings delivery and order-book replenishment. 

Meanwhile, Affin Hwang is positive on the country’s downstream plant turnaround activities, supporting the O&M business activities involving Serba Dinamik. 

“Based on the latest Petronas 2019-21 Activity Outlook report, the outlook for plant turnaround activities has turned bullish, revising from 3.5 million man-hours to 8.1 million. 

“This translates to an incremental 4.6 million additional man hours, which is positive as the plant turnaround also yields higher margins compared to other O&M jobs. 

“This could potentially boost contribution from Malaysia, leading to upside potential to the financial year 2019 earnings,” it added.