Rohas’ 1HFY18 earnings of RM14.5m (+39% YoY) were below our expectations due to slower revenue recognition due to change of government. Apart from domestic jobs which have been delayed due to changing in federal government, Laos’s project also faced delay due to change of planning. Rohas managed to secure RM290m worth of new jobs YTD. This brings its EPCC orderbook to c.RM680m, translating into decent 5.2x cover ratio on FY17 EPCC revenue. Cut FY18-19 earnings forecast by 15% and 11% respectively after take into account slower progress billings. Maintain BUY rating with lower TP of RM1.69 (from RM1.74) following earnings cut but slightly offset by the roll forward of valuation horizon from FY18 to FY19.

Below expectations. Rohas reported 2QFY18 results with revenue of RM90.3m (+4% QoQ, +69% YoY) and core earnings of RM6.7m (-14% QoQ, +21% YoY). This brings 1HFY18 core earnings to RM14.5m, increasing by 39% YoY. 1H core earnings accounted for 27% of our full year forecast which is below expectation. This is mainly due to slow progress billings for projects due to change of government post GE14.

QoQ. Core PATAMI decreased by 14% mainly due to lower EPCC margin due to higher contributions from HGPT which has lower margin.

YoY/ YTD. YoY and YTD Core PATAMI increased by 21% and 39% respectively mainly due to contribution from HGPT acquisition.

Delay in jobs. Apart from domestic jobs which have been delayed due to change in federal government, the Laos’s project also faced delay due to planning alterations. However, we expect this to be normalized in the near term. Apart from EPCC division, Rohas’ tower segment is also affected by delay in domestic jobs as the company can only recognize revenue only after the towers have been put up by their clients.

Healthy orderbook level. Rohas managed to secure RM290m worth of new jobs YTD. This brings its EPCC orderbook to c.RM680m, translating into decent 5.2x cover ratio on FY17 EPCC revenue. This is expected to provide a strong boost to Rohas' earnings growth for the next 2 years. The company targeting for orderbook replenishment of RM500m this year with bulk of the new jobs from Bangladesh as HGPT is one of the top three EPCC companies in the country's power transmission sector.

Forecast. Cut FY18-19 earnings forecast by 15% and 11% respectively after take into account slower progress billings.

Maintain BUY, TP: RM1.69. Maintain BUY rating with lower TP of RM1.69 (from RM1.74) following earnings cut but slightly offset by the roll forward of valuation horizon from FY18 to FY19. TP is pegged to 16x PE multiple. 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 - 29 Aug 2018