Rohas’ FY18 earnings of RM18.5m (-44% YoY) were below our expectations due to lower than expected contribution from tower fabrication segment and cost overruns in HGPT EPCC projects. YTD tower fabrication segment decreased 13% to RM154m due to decrease in deliveries. We understand that this was mainly due to delay in work orders from clients post GE14. Margin remains intact at the range of 20-25% and orderbook still remains intact at c.RM140m Cost overruns in EPCC segment were mainly due to challenging projects awarded to HGPT before it was acquired by Rohas. Cut FY19-20 earnings forecast by 25-33% after taking into account lower deliveries of tower and smaller EPCC contract margin. Downgrade to HOLD with lower TP of RM0.64 (RM1.13) following earnings cut. TP is pegged to lower PE multiple of 11x to FY19 earnings.

Below expectations. Rohas reported 4QFY18 results with revenue of RM146.9m (+89% QoQ, -7% YoY) and core earnings of RM0.1m (-98% QoQ, -99% YoY). This brings FY18 core earnings to RM18.5m, decreasing by 44% YoY. FY18 core earnings accounted for 48% of our full year forecast which is below expectation. This was mainly due to lower than expected contribution from tower fabrication segment and cost- overruns in HGPT EPCC projects.

Tower fabrication. YTD tower fabrication segment decreased 13% to RM154m due to decrease in deliveries. We understand that this was mainly due to delay in work orders from clients after changing of government post GE14 that caused slowing down of work. Margin remains intact at the range of 20-25%. Orderbook still remains intact at c.RM140m and this segment will continue to resume its growth momentum once uncertainty post changes of government dissipates over time.

EPCC. EPCC segment was the main culprit behind the weak results. This is mainly due to cost overruns in projects that were awarded to HGPT before it acquired by Rohas. Certain projects especially those in Malaysia proved to be challenging and hence led to cost overruns. We understand that those projects are near completion and should not cause significant negative impact going forward.

Forecast. Cut FY19-20 earnings forecast by 33.1% and 24.7% respectively after taking into account lower deliveries of tower and smaller EPCC contract margin.

Downgrade to HOLD, TP: RM0.64. Downgrade to HOLD rating with lower TP of RM0.64 (from RM1.13) following earnings cut. TP is pegged to lower PE multiple of 11x (from 13x) on FY19 EPS following the weaker earnings outlook and sector de rating for small capitalization stocks.

Source: Hong Leong Investment Bank Research - 1 Mar 2019