News

• Wins transmission lines contract. Rohas 75%-owned subsidiary, HG Power Transmission Sdn Bhd (HGPT) was awarded a RM54m contract from Power Grid Company of Bangladesh Ltd. The job scope involves design, supply, installation, testing & commissioning of new and reinforcement of existing 132 KV transmission lines on a turnkey basis. The project is funded by KfW Development Bank, Germany and the expected contractual completion period is 24 months.

Comments

• First contract since acquisition. This contract represents the first contract win for HGPT since the completion of its acquisition by Rohas. We are not surprised by this job win as we had mentioned in our previous report that HGPT is one of the top three EPCC companies in Bangladesh’s power t ransmission sector. Going forward, we expect more job wins for HGPT from Bangladesh as the government is investing heavily in power transmission and distribution infrastructure in order for the country to generate 60,000MW of electricity by 2041.
• EPCC orderbook at a high. Following the award of this contract, Rohas current EPCC orderbook is estimated at RM650m. This is expected to provide a strong boost to Rohas’ earnings growth going forward as the current contribution from EPCC division is minimal.

Risks

• Failure to clinch future EPCC projects

Forecasts

• We adjust our orderbook replenishment assumption as we had previously assumed no further EPCC contract wins in FY17. Consequently, our FY18-19 earnings forecasts are each raised by 1.4% (FY17 unchanged)

Rating

Maintain BUY, TP :RM1.69↑

• 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.
• 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 higher TP of RM1.69 following adjustment of our earnings forecast. Our TP is based on unchanged 16x P/E multiple pegged to FY18 earnings.

Source: Hong Leong Investment Bank Research - 14 Nov 2017