Highlights

• Future growth from East Malaysia. Most of the contribution for tower fabrication currently comes from West Malaysia but management believes that going forward, contribution from East Malaysia should grow faster due to higher growth in power infrastructure spending. Order book for tower segment currently stands at RM150m and it is bidding for another c.RM50m contract.
• Actively bidding for water EPCC projects. Apart from Laos’s transmission EPCC project, Rohas is also actively bidding for water related EPCC projects worth c.RM300m, with the bulk of the contracts from foreign countries.
• Potential significant contribution from HG Power (HGPT). Acquisition of HGPT is expected to be completed in 4Q17 and Rohas may book in 1-2 months of HGPT earnings in current financial year (FY17) post deal completion. HGPT current orderbook stands at c.RM400m with the bulk of it from foreign countries. At the same time, HGPT is also actively bidding for jobs worth c.RM600m. Going forward, we understand that HGPT will has a orderbook target that is significantly higher than current level due to much better financial strength being part of public listed company.
• Shariah compliant status. Rohas is not Shariah compliant now as it does not have a full year annual audited account yet (post RTO). We understand that Rohas would be admitted into Shariah list barring any unforeseen circumstances after the release of full year FY17 annual audited accounts next year.

Risks

• Failure to clinch future EPCC projects.

Forecasts

• Unchanged as we have already raised our forecast post 2Q results release.

Rating

Maintain BUY, TP :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 and we expect stable EPCC contract flows for the company due to the essential nature of infrastructure industry in emerging markets.

Valuation

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

Source: Hong Leong Investment Bank Research - 29 Aug 2017