Rohas’s 1HFY20 core loss of -RM1.6m were below our expectations mainly due to poorer than expected margins. Outstanding EPCC orderbook of c.RM570m translates into 1.7x cover ratio with tower orderbook amounting to RM130m translating into 1.0x cover. Cut FY20-22 earnings by 3-24%. Maintain BUY rating with same TP of RM0.50, pegged to an unchanged 10x PE multiple based on FY21 earnings. We reckon earnings recovery post-MCO is likely to be steep, underpinned by its substantial contract wins in Bangladesh recently.

Below expectations. Rohas reported 2QFY20 results with revenue of RM43.3m (- 61% QoQ, -66% YoY) and core loss of -RM3.2m (against core earnings of RM1.6m in 1QFY20 and RM11.2m in 2QFY19). This brings 1HFY20 performance to marginal core loss of -RM1.6m (against core earnings of RM13.9m in 1HFY19). We deem the results below expectations even after accounting for a stronger rebound in 2H.

Dividends. No DPS were declared during the quarter (1HFY20: nil; 1HFY19: nil).

Deviations. Despite revenue meeting expectations, results shortfall came from lower than expected margins.

QoQ/YoY. 2QFY20 sank into core loss of -RM3.2m (against core earnings of RM1.6m in 1QFY20 and RM11.2m in 2QFY19) as revenue declined (-61% QoQ, -66% YoY) hitting both EPCC (-66% QoQ, -65% YoY) and fabrication (-36% QoQ, -67% YoY) segments. This was on the back of complete shutdown of both segments until late May where operations gradually restarted. Recall that due to stringent testing SOPs coupled with limited testing access for some EPCC sites and fabrication factory, 2QFY20 saw slow resumption of operations.

YTD. 1HFY20 turned to core loss -RM1.6m from core earnings of RM13.9m in 1HFY19. Major driver of the poorer performance was halting of domestic operations for roughly 2.5 months in 1HFY20. Foreign EPCC works at Laos and Bangladesh were also hampered as both went into lockdown on 30-March and 26-March respectively. Operations in both countries have restarted with new projects in Bangladesh (RM294m worth) starting imminently.

Orderbook. Current orderbook for EPCC segment stands at c.RM570m which translates into 1.7x cover ratio of FY19 EPCC revenue. Tower fabrication orderbook stands at about c.RM130m, representing 1.0x cover ratio on FY19 tower fabrication revenue. Tenderbook remains at RM1b underpinned by its Penang transmission job, inevitably delayed due to the MCO.

Forecast. Cut FY20/21/22 earnings by 24.6%/17.2%/3.3% after recalibrating for 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 mid-FY21 to FY21 at an unchanged 10x PE multiple; all in our TP is unchanged at RM0.50. We reckon earnings recovery post-MCO is likely to be steep, underpinned by its substantial contract wins in Bangladesh recently.

Source: Hong Leong Investment Bank Research - 1 Sept 2020