Rohas’s 9MFY19 earnings of RM18m (+39% YoY) were within our expectations mainly due to stronger topline growth from EPCC and fabrication segments. YTD core PATAMI increased on higher contribution from EPCC segment and remediation from the acquisition of HGPT. Outstanding EPCC orderbook of c.RM340m translates into 1.5x cover ratio. Maintain our earnings forecast as results were within expectations. Maintain BUY with same TP of RM0.79 based on 12x PE multiple pegged to FY20 earnings.

Within expectations. Rohas reported 3QFY19 results with revenue of RM121.0m (- 5% QoQ, +55% YoY) and core earnings of RM4.0m (-64% QoQ, +2% YoY). This brings 9MFY19 core earnings to RM17.9m, increasing by 39% YoY. The core earnings accounted for 73% of our full year forecast which is within expectation. Dividend of 1 sen per share was declared during the quarter.

QoQ. Core earnings decreased by 64% attributable to RM7.4m remedy for breach of warranties under the share sale agreement for the acquisition of HPGT in 2QFY19.

YoY. Core earnings of RM4.0m registered during the quarter (against core loss of RM1.4m) due to higher fabrication and EPCC revenue increasing by 19% and 88% respectively.

YTD. Core earnings increased by 39% due to higher revenue contribution from EPCC segment and remediation for acquisition of HGPT in 2QFY19.

Outlook. We estimated outstanding orderbook for EPCC segment at c.RM340m which translates into 1.5x cover ratio of FY18 EPCC revenue. Tower fabrication orderbook stands at about c.RM200m, representing 1.1x cover ratio of FY18 tower fabrication revenue. We expect earnings in 4QFY19 to be stronger sequentially driven by continued turnaround at HGPT (normalized profit c.RM10m p.a.) as well as delivery of 130 towers (RM150k per tower) by Nov-19. Looking ahead, its fabrication segment’s orderbook replenishment is to be buoyed by Sarawak state’s initiative to rollout 5,000 towers over the medium term. Recall that Phase 1 of the rollout consisted of 300 towers with Rohas securing 130 towers. Elsewhere, Rohas has submitted tender for a transmission line from Butterworth to Penang Island which will run parallel to the Penang Bridge (estimated project value: RM1bn). There are 5 bidders: from China, India, Australia, Rohas-Muhibbah and MMC-MRCB. The JV structure between Rohas and Muhibbah has not been fixed but will likely be based on job scope breakdown (civil marine works will be >50% of project value). Tenders will close end-Nov with award likely in 1Q20.

Forecast. Maintain forecasts as results were inline with expectations.

Maintain BUY, TP: RM0.79. Maintain our BUY rating and TP of RM0.79. We reckon with the completion of its legacy contracts, earnings should grow moving forward driven by better margins at HGPT, new EPCC jobs and stronger tower orders. TP is pegged to 12x P/E multiple based on FY20 earnings.

Source: Hong Leong Investment Bank Research - 3 Dec 2019