Highlights

• Orderbook replenishment expected to double next year. Rohas is aiming to double its job replenishment next year to c.RM800m, according to its CEO Mr Leong in an article published in latest The Edge weekly. Out of the RM800m job replenishment, RM500m new contracts are expected to come from Rohas-Euco (REI) (a fully owned subsidiary which represents tower fabrication and water related EPCC divisions) while the rest is from newly acquired 75% owned- HG Power Transmission Sdn Bhd (HGPT).
• Positive but not surprising. We are not surprised by this ambitious guidance as we had mentioned in our previous reports that Rohas has an orderbook target that is significantly higher than its current level (c.RM180m and c.RM300m for REI and HGPT respectively). We understand that the expected strong job replenishment from REI is due to more tower fabrication jobs from East Malaysia and more water related EPCC projects.
• HGPT a strong powerhouse in Bangladesh. The article also mentioned that HGPT is one of the top three EPCC companies in Bangladesh’s power transmission sector. As a result, the company is expected to benefit from further investment in power transmission and distribution infrastructure which is estimated at USD$20bn in order for the country to generate 60,000MW of electricity by 2041.
• Shariah compliant status. Rohas is not Shariah compliant now as it has yet to produce its full year annual audited account post RTO. We understand that Rohas would be admitted into the 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 had factored in expected order book replenishment after acquisition of HGPT.

Rating

Maintain BUY, TP :RM1.67↔

• 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

• Reiterate BUY recommendation with unchanged TP of RM1.67. Our TP is based on unchanged 16x P/E multiple pegged to FY18 earnings.

Source: Hong Leong Investment Bank Research - 06 Nov 2017