Rohas’ 9MFY18 earnings of RM18.4m (+5% YoY) were below our expectations due to slower revenue recognition due to change of government post GE14. Apart from domestic jobs which have been delayed, Laos’s project also faced setbacks due to change of planning. Rohas’ EPCC orderbook currently stands at c.RM450m, representing c.3.5x cover ratio of their FY17 EPCC revenue. Cut FY18-20 earnings forecast by 14-26% after take into account slower progress billings. Maintain BUY rating with lower TP of RM1.13 (from RM1.38) following earnings cut. TP is pegged to 13x PE multiple on FY19 EPS.

Below expectations. Rohas reported 3QFY18 results with revenue of RM78.0m (- 14% QoQ, +68% YoY) and core earnings of RM4.0m (-41% QoQ, -44% YoY). This brings 9MFY18 core earnings to RM18.4m, increasing by 5% YoY. 9M core earnings accounted for 40% of our full year forecast which is below expectation. This was mainly due to slow progress billings for projects due to change of government post GE14.

QoQ/ YoY. QoQ and YoY core PATAMI decreased by 41% and 44% respectively mainly due to lower revenue in tower fabrication segment due to lower deliveries of telecommunication towers, partially offset by higher EPCC revenue contributed by HGPT acquisition.

YTD. YTD core PATAMI increased by 5% mainly due to contribution from HGPT acquisition.

Delay in jobs. Apart from domestic jobs which have been delayed due to changing in government post GE14, Laos’s project also faced delay due to planning changes. However, we expect this to normalized in the near term. Apart from the EPCC division, Rohas’ tower segment was also affected by delay in domestic jobs as the company can only recognize revenue after the towers have been put up by their clients.

Healthy orderbook level. Rohas’ EPCC orderbook currently stands at c.RM450m, representing c.3.5x cover ratio of their FY17 EPCC revenue. This is expected to provide a strong boost to earnings growth for the next 2 years. Besides, the company is targeting for orderbook replenishment of RM500m this year.

Lower than expected provision. Provision on HGPT’s liquidated damages turned out to be lower than our expectation at RM4m. We expect the impairment to be one off as it is related to costs incurred before the acquisition and hence no impact to our core earnings forecast. Moreover, Rohas has been compensated by getting a discount to their original consideration.

Forecast. Cut FY18-20 earnings forecast by 14%, 18% and 26% respectively after take into account slower progress billings.

Maintain BUY, TP: RM1.13. Maintain BUY rating with lower TP of RM1.13 (from RM1.38) following earnings cut. TP is pegged to 13x PE multiple on FY19 EPS. 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 - 28 Nov 2018