Rohas’s FY19 earnings of RM26m (+61% YoY) were above our expectations mainly due to stronger contribution from EPCC segment. YTD core PATAMI increased on higher contribution from EPCC segment and remediation from the acquisition of HGPT. Outstanding EPCC orderbook of c.RM500m translates into 1.5x cover ratio. Maintain our earnings forecast as stronger growth has been baked in to our assumptions. Maintain our forecasts and BUY rating with an unchanged TP of RM0.79. TP is pegged to 12x PE multiple based on FY20 earnings.

Above expectations. Rohas reported 4QFY19 results with revenue of RM132.1m (+9% QoQ, -11% YoY) and core earnings of RM8.1m (+102% QoQ, against marginal profit of RM0.2m YoY). This brings FY19 core earnings to RM26.0m, increasing by 61% YoY. The core earnings accounted for 106% of our full year forecast which is above expectations. Core earnings have been adjusted for net impairment of receivables amounting to RM11.6m in relation to its China venture in 2015. The stronger results were due to better contribution from its EPCC segment.

Dividends. No DPS were declared during the quarter (FY19: 0.5 sen, FY18: 1 sen).

QoQ. Core earnings increased by 102% attributable to stronger performance from the EPCC segment and higher contribution from share of associates mainly due to accounting changes.

YoY. Core earnings surged strongly to RM26.0m (against marginal profit of RM0.2m) due to low base in 4QFY18 as a result of HGPT’s cost overruns. For the latter, projects especially those in Malaysia proved to be challenging terrain wise, leading to cost overruns.

YTD. Core earnings increased by 61% due to higher revenue contribution from EPCC segment driven by higher work done in Malaysia, Bangladesh and Laos. This was partially offset by weaker power and telco fabrication segment, both marred by policy uncertainty post-GE14.

Outlook. Current orderbook for EPCC segment stands at c.RM500m which translates into 1.5x cover ratio of FY19 EPCC revenue. Tower fabrication orderbook stands at about c.RM200m, representing 1.6x cover ratio on FY19 tower fabrication revenue. Moving ahead, earnings are likely to be driven by continued turnaround at its Vietnam and Indonesian associates. The estimated contribution is likely to come in at c.RM4m each. Rohas is awaiting an award outcome for a transmission line stretching 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. Having undertaken the widening of Penang Bridge before, we reckon Muhibbah is a good partner for Rohas (which will then undertake the transmission line portion of works). Based on management's past guidance, an award outcome may materialise in 1H20. Apart from that we understand that Rohas will tender for phase 2 extension to its current Laos EPCC contract with a similar contract value.

Forecast. Maintain forecasts as we have factored in stronger growth going into FY20.

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 stronger profitability at HGPT, new EPCC jobs and stronger tower orders. Our TP is pegged to 12x P/E multiple based on FY20 earnings.

Source: Hong Leong Investment Bank Research - 9 Mar 2020