We recently met up with Rohas’ management. Its EPCC orderbook currently stands at c.RM690m (5.3x cover ratio). This is expected to provide a strong boost to Rohas’ earnings growth for the next two years. Rohas is targeting for orderbook replenishment of RM500m this year and has achieved 50% YTD. Management does not discount the possibility of growing the company further through acquisitions. Growth focus is expected to be in the area of telecommunication towers EPCC. Maintain forecast and BUY rating with unchanged TP of RM1.74 (16x FY18 earnings).

Below are the key takeaways from our recent meeting with Rohas’ management.

EPCC Orderbook. Rohas’ EPCC orderbook currently stands at c.RM690m, representing c.5.3x cover ratio of their FY17 EPCC revenue. This is expected to provide a strong boost to Rohas’ earnings growth for the next two years. Besides, the company is targeting for orderbook replenishment of RM500m this year and so far, has achieved 50% of the target YTD. We understand that bulk of the new jobs will come from Bangladesh as newly acquired HG Power Transmission (HGPT) is one of the top three EPCC companies in Bangladesh’s power transmission sector. HGPT 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.

Fabrication Orderbook. The balance of Rohas’ tower fabrication order book is about RM165m, represents 0.93x cover ratio of their FY17 fabrication business revenue. We deem this level of cover ratio sufficient to maintain the growth momentum as tower fabrication jobs generally are more short-term and recurring in nature. Going forward, we expect more tower fabrication supply contracts from East Malaysia due to abundant power infrastructure investment in Sarawak.

Growth Prospects. We understand that the management does not discount the possibility of growing the company further through acquisitions. The growth focus of the company is expected to be in the area of telecommunication towers EPCC. Currently Rohas is involved in telecommunication towers supply and installation jobs and the management is looking forward to expand its service offering to become a full-fledged infrastructure engineering company.

Forecast. Maintained with upward bias as our full year orderbook replenishment assumption for HGPT of RM400m is less than management internal target of RM500m. However we prefer to remain conservative at this juncture.

Maintain BUY, TP: RM1.74. Maintain BUY recommendation with unchanged TP of RM1.74. TP is based on unchanged 16x P/E multiple pegged to FY18 earnings. 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.

Source: Hong Leong Investment Bank Research - 19 Apr 2018