Post 3Q18 results, Rohas share prices slid from RM0.90 to a low at RM0.56 before rebounding to RM0.62 yesterday. We expect share prices to grind higher in anticipation of a positive 4Q18 results and stable FY19-20 outlook, underpinned by continuous infrastructure investment in the ASEAN. Rohas EPCC orderbook currently stood at ~RM450m, representing c.3.5x cover ratio of their FY17 EPCC revenue, providing a strong boost to earnings growth for the next 2 years. Besides, the company is targeting for orderbook replenishment of RM500m this year. Rohas valuations are undemanding at 7.1x FY19 P/E (15% lower to peer; Ex-cash P/E is 6.2x) or 0.94x P/B (34% lower to peer), supported by a resilient 9% FY18-20 EPS CAGR and 8.5sen net cash/ share (which allows continued decent dividends). The recent downtrend line breakout could lift prices towards RM0.72-0.80 territories.

Morphing into regional turnkey contractor. Rohas Tecnic Berhad (Rohas) was formed after Rohas-Euco Industries Sdn Bhd (REI) underwent a reverse takeover of Tecnic Group Berhad in March 2017. Rohas is principally involved in the fabrication of steel towers for power transmission and telecommunications industry (contributed about 48% to 9MFY18 sales), having amassed over 30 years of experience and track record. It has also ventured into taking up the EPCC role for water and power transmission-related jobs. Meanwhile, the acquisition of HGPT (completed in Oct 2017) has transformed the group into a regional turnkey Engineering, Procurement, Construction and Commissioning (EPCC) contractor for power transmission lines and substations (contriobuted 52% to 9MFY2018 sales) will open up more contract opportunities for Rohas in new markets such as Bangladesh, Papua New Guinea and Indonesia. Meanwhile, HGPT would also benefit from Rohas EPCC exposures in Vietnam and Laos.

Positive downtrend line brekaout. After sliding 37.8% from RM0.90 post 3Q18 results to a low of RM0.56, the stock managed to bottom up to end at RM0.62 yesterday, staging a long awaited long term downtrend line brekaout. A successful breach above RM0.67 (14 Feb high) may lift prices higher towards RM0.72 (50d SMA) followed by our LT objective of RM0.80 psychological barrier. Conversely, the stock may take a breather if it stays below the RM0.67 threshold in the coming sessions. Supports may be found at RM0.55-0.60 levels. Cut loss at RM0.54.

Source: Hong Leong Investment Bank Research - 21 Feb 2019