Results

• Rohas reported 2QFY17 results with revenue of RM53.6m (+0.7% QoQ) and core PATAMI (ex. forex) of RM5.6m (+14.9% QoQ). The growth in core PATAMI was mainly due to lower admin expenses (-18.8%) and marginally higher revenue (+0.7%)
• 1HFY17 core PATAMI (ex. forex) amounted to RM10.4m (+24% YoY), mainly attributed to strong revenue growth of 60%, partially offset by higher admin expenses (+35%).

Deviations

• 1H core PATAMI made up 40% of our full year estimates. We deem this above our expectations as 2H is seasonally stronger. To illustrate, 2H16 contributed c.68% of full year core PATAMI for FY16.

Dividends

• None.

Highlights

• Strong revenue growth from all segments. The encouraging performance YTD was contributed by revenue growth from all business segments, namely tower fabrication (+34.5%), telecommunication towers installation (+294.8%) and galvanising engineering (+138.9%). This further substantiates our thesis that Rohas is a beneficiary of steady growth in Malaysia’s power and telecommunication industries.
• Laos EPCC project to start contributing in 2H. To recap, Rohas has been awarded a contract by Electricite du Lao (EDL) to supply and construct transmission lines, substations and distribution lines in Laos. The US$70m (circa RM300m) contract will commence in 2H and is expected to complete within 24 months.

Risks

• Failure to clinch future EPCC projects.

Forecasts

• In view of the strong results, we raise FY17-19 earnings by 8.6%, 16.1% and 6.4% respectively. Note that we have not factored in contribution from HG Power Transmission (HGPT) pending completion of deal which is expected in 4Q17.

Rating

Maintain BUY, TP raised to RM1.62

• We like Rohas for its exposure to ASEAN which is one of the fastest growing economic regions in the world. Infrastructure investment needs are expected to be robust in the foreseeable future and this will generate steady demand for the products of the company. Moreover, the acquisition of HGPT is expected to open up more EPCC contract opportunities for Rohas in new markets.

Valuation

• Maintain BUY recommendation with higher TP of RM1.62 based on unchanged 16x P/E multiple pegged to FY18 earnings after raising earnings forecast.

Source: Hong Leong Investment Bank Research - 28 Aug 2017