Rohas announced that it has entered into a non-binding term sheet to acquire 40% of PMV which is the operator of two water treatment plants with expected capacity of 95 MLD in Vietnam. By benchmarking to Binh An Water treatment plant that has capacity of 100 MLD, 40% stake in PMV is expected to contribute RM4m annual profit to Rohas. This translates to c.10x P/E multiple. Rohas’ proforma net gearing would increase to 21% (from 9%). Forecast unchanged pending for more details and finalization of the deal. Potential increase of 3.5%, 2.4% and 2.1% to FY18-20 earnings post completion of deal assuming RM4m annual contribution and the deal is fully funded by debt. Maintain BUY, TP: RM1.74 (16x FY18 P/E).

NEWSBREAK

Acquisition of Vietnam water treatment plants. Rohas announced that it has entered into a non-binding term sheet with the shareholders of PHU MY VINH CONSTRUCTION AND INVESTMENT CORPORATION (PMV) in respect of a proposed acquisition of 40% of PMV. The proposed purchase price is c.RM40.6m and the mode of purchase consideration will be determine in a later date. PMV is the owner and operator of two water treatment plants with total combined water supply capacity of 55000 m³/day (55 MLD) in Long An Province, Vietnam. Note that the total combined water supply capacity is expected to achieve 95000 m³/day (95 MLD) in 2018 due to capacity expansion in one of the water treatment plant (Hia Khnh Ty Water Supply System).

HLIB’s VIEW

Strengthen recurring income. This proposed acquisition is the second venture by the company to strengthen its recurring income after the mini-hydro power plant project in Indonesia. Besides, this acquisition also allows Rohas to expand and grow its water business regionally. Note that this is not the first venture in Vietnam’s water sector by Rohas as the company was involved in Yenso water treatment plant project in Hanoi before.

Earnings impact. Little details on expected earnings are available at this juncture. However by benchmarking (albeit simplistically) to Binh An Water treatment plant (co owned by IJM and Salcon) that has capacity of 100 MLD, average profit contribution is c.RM11m annually. Hence, 40% stake in PMV (95 MLD total capacity) is expected to contribute RM4m annual profit to Rohas once the operations of water treatment plants are stabilized post capacity expansion. The purchase price translates to c.10x P/E multiple.

Funding and net gearing. We estimate that Rohas’ net gearing would increase from 9% (1QFY18) to 21% upon completing the acquisition on a proforma basis.

Forecast. Unchanged pending for more details and finalization of the deal. Potential increase of 3.5%, 2.4% and 2.1% to FY18-20 earnings post completion of deal assuming RM4m annual profit contribution and 100% debt funded deal.

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 - 2 Aug 2018