Rohas reported 1QFY19 core PATAMI of RM2.6m (+>100% QoQ, -66% YoY) which were below our expectations. The deviation was mainly due to lower than expected tower deliveries and higher than expected finance costs. EPCC segment outstanding orderbook currently stands at c.RM520m which translates into 2.2x cover ratio of FY18 EPCC revenue. Tower fabrication orderbook stands at about RM130m, representing 0.85x cover ratio of FY18 tower fabrication revenue. Cut FY19-20 earnings by 6-10%. Introduce FY21 earnings forecast of RM34.0m. Maintain HOLD with lower TP of RM0.60 (from RM0.64). TP is pegged to 11x P/E multiple on FY19 earnings.

Below expectations. Rohas reported 1QFY19 results with revenue of RM94.0m (- 36% QoQ, -8% YoY) and core PATAMI of RM2.6m (+>100% QoQ, -66% YoY). The core PATAMI accounted for 9% of our full year forecast which is below our expectations. The deviation was mainly due to lower than expected tower deliveries and higher than expected finance costs.

QoQ. Core PATAMI increased significantly due to absence of provision for cost overrun in EPCC projects, partially offset by lower revenue contribution from both tower fabrication and EPCC segment.

YoY. Core PATAMI plunged -66% mainly due to lower tower deliveries and higher mix of EPCC contribution which has lower margin than tower fabrication segment.

Higher than usual expenses. There is a write-down of tower inventories worth about RM1.6m in the quarter. This is because the towers were not collected by customer yet as the site is not ready. Revenue of tower fabrication segment is only recognised once the towers are delivered to customers and would remain as inventories before that. Hence, any late collection from customers would result in write-down of inventories. The inventories written-off would be reverse and recognised as revenue once the towers are successfully delivered and we understand that Rohas is actively engaging with the customer to resolve the issue.

Orderbook. EPCC segment outstanding orderbook currently stands at c.RM520m which translates into 2.2x cover ratio of FY18 EPCC revenue. Tower fabrication orderbook stands at about RM130m, representing 0.85x cover ratio of FY18 tower fabrication revenue.

Forecast. In view of the weaker results, we cut FY19-20 earnings by -6.1% and - 10.4% respectively after factoring in higher finance costs and lower tower deliveries. We introduce our FY21 earnings forecast of RM34.0m.

Maintain HOLD, TP: RM0.60. Given the results weakness, we maintain our HOLD rating with lower TP of RM0.60 (from RM0.64) following the earnings cut. TP is pegged to 11x P/E multiple to FY19 earnings.

Source: Hong Leong Investment Bank Research - 30 May 2019