Rohas’s 1QFY20 earnings of RM1.6m (-80% QoQ, -40% YoY) were below our expectations mainly due to MCO in Malaysia. Outstanding EPCC orderbook of c.RM580m translates into 1.7x cover ratio with tower orderbook amounting to RM170m translating into 1.3x cover. Cut FY20-22 earnings by 3-23%. Maintain BUY rating with slightly lower TP of RM0.50, pegged to an unchanged 10x PE multiple based on mid-FY21 earnings. We reckon due to the nature of its business, earnings recovery trajectory post-MCO is likely to be relatively steeper to be underpinned by its substantial contract wins in Bangladesh.

Below expectations. Rohas reported 1QFY20 results with revenue of RM109.8m (- 17% QoQ, +17% YoY) and core earnings of RM1.6m (-80% QoQ, -40% YoY). The core earnings accounted for 7% of our full year forecast which fell short of expectations.

Dividends. No DPS were declared during the quarter (against 1QFY19: nil).

Deviations. The results shortfall came from a combination of slow site handover (fixed overheads and mobilisation costs were incurred) as well as stop work order due to the MCO which impacted its Malaysian EPCC segment. We gather the sites are currently finalising the terms with handover expected by end of 2QFY20.

QoQ. Core earnings declined by 80% in tandem with fall in revenue attributable to lower tower delivery and billings recognised as a result of the MCO (2 weeks of 1QFY20).

YoY. Core earnings fell by 40% as contribution shifted to lower margin EPCC segment (sites in Laos and Bangladesh were largely unaffected as minimal lockdown was captured in 1QFY20). Further compounding the decline was lower Malaysian EPCC margins as a result of the lockdown in Malaysia and slow site handover during the quarter.

Orderbook. Current orderbook for EPCC segment stands at c.RM580m which translates into 1.7x cover ratio of FY19 EPCC revenue. Tower fabrication orderbook stands at about c.RM170m, representing 1.3x cover ratio on FY19 tower fabrication revenue. Given the usual contract duration of both segments (18-36 months), orderbook level looks healthy. Tenderbook remains at RM1b underpinned by its Penang transmission job, inevitably delayed due to the MCO. Apart from that we understand that Rohas will tender for extension to its current Laos EPCC contract with a similar contract value.

Lockdown updates. The lockdown in Laos and Bangladesh were largely not reflected in 1QFY20 as both countries went into lockdown on 30-March and 26-March respectively. Nonetheless, we gather that Laos have relaxed lockdown measures since early May while Bangladesh has lifted restrictions by end-May. Back home, management has guided that all of its foreign workers have been screened and back to full force in June.

Forecast. Cut FY20/21/22 earnings by 22.9%/3.3%/3.1% after factoring in progress delays and lower productivity due to SOP measures.

Maintain BUY, TP: RM0.50. Despite the earnings cut, this is largely offset by the rolling of valuation horizon from FY20 to mid-FY21 at an unchanged 10x PE multiple; all in our TP is lowered slightly from RM0.51 to RM0.50. We reckon due to the nature of its business, earnings recovery trajectory post-MCO is likely to be relatively steeper to be underpinned by its substantial contract wins in Bangladesh recently.

Source: Hong Leong Investment Bank Research - 15 Jun 2020