Serba’s compressed natural gas (CNG) plant in Muara Jambi, Indonesia began operations in 2017, and is operating smoothly currently. Although contributions from the plant are minimal, Pertamina is impressed with Serba’s engineering, procurement, construction and commissioning (EPCC) works and alludes that more CNG plant contracts may be in the pipeline. Furthermore, we understand that a partnership with Tokyo Gas is being mooted at this juncture for the construction of more CNG plants in Indonesia.

Serba’s EPCC contracts in Malaysia are slightly behind schedule, due to the change in government after the 14th general election. Nevertheless, Malaysia’s new energy minister is targeting 20% of power generation to come from renewable energy in 2025. Given that Serba’s plants are hydropower plants, we believe the contracts will likely be maintained. On the other hand, construction of its Chlor-Alkali plant in Tanzania is ahead of schedule. Management has noted that the plant may be completed before the expected completion date of 2020. Management expects to target larger assets for its asset ownership strategy after proving itself under current contracts. Recall that besides contributions from share of associates and EPCC contracts, Serba benefits from the provision of O&M services for all the plants.

We maintain a TP of RM4.72 based on 15 times 2019 price-earnings ratio. We continue to like Serba due to its: i) global exposure; ii) aggressive expansion into the power and water industries via asset ownership; iii) major development in Pengerang; and iv) robust order book expansion. Reiterate “buy”.