Rohas’s FY20 core loss of -RM2.8m were far below our expectations mainly due to weaker than expected margins. Outstanding EPCC orderbook of c.RM500m translates into 2.1x cover ratio with tower orderbook amounting to RM100m translating into 1.1x cover. While operational normalisation remains challenging, earnings should pick up in FY21. Maintain forecasts. Downgrade to HOLD with unchanged TP of RM0.42 due to limited upside. TP is derived by pegging FY21 EPS to 10x P/E multiple.

Below expectations. Rohas reported 4QFY20 results with revenue of RM101.2m (36% QoQ, -23% YoY) and core loss of -RM1.7m (against core loss of -RM0.4m in 3QFY20, core earnings of RM8.1m in 4QFY19). This brings FY20 performance to core loss of -RM2.8m (against core earnings of RM26.0m in FY20). We deem the results to be below expectations falling way off our full year FY20 estimate of RM5.0m.

Dividends. No dividends were declared (FY20: 0.50; FY19: 1.0 sen).

Deviations. Despite meeting revenue expectations (100%), results shortfall came from lower than expected operational margins.

QoQ. Core loss widened to -RM1.7m (against core loss of -RM0.4m in 3QFY20) where the steep decline in gross margins (-8.5 ppts) more than offset a 36% rebound in revenue. We reckon this could be due to additional SOP compliance costs as well as increase in materials costs towards the latter part of the quarter.

YoY. 4QFY20 performance fell to core loss from core profit of RM8.1m in 4QFY19 in tandem with the -23% decline in revenue largely attributed to decline in EPCC business, which we gather was due to loss of productivity at sites.

YTD. FY20 sustained a core loss of -RM2.8m (from core earnings of RM26.0m in FY19). Major driver of the poorer performance was imposition of various forms of MCO leading to halting of operations for roughly 2.5 months as well as loss of operational productivity throughout FY20. Foreign projects were also hampered by various restrictions imposed. Consequently FY20 saw decline in revenue for both EPCC (-31%) and towers (-29%).

Orderbook. Estimated outstanding orderbook for EPCC segment stands at c.RM500m which translates into 2.1x cover ratio of FY20 EPCC revenue (low base). Tower fabrication orderbook stands at about c.RM100m, representing 1.1x cover ratio on FY20 tower fabrication revenue. Tenderbook stands unchanged at c.RM500m due to slow job flows.

Forecast. Maintain forecasts in view of expected operational normalisation in FY21.

Downgrade to HOLD, TP: RM0.42. Downgrade to HOLD with unchanged TP of RM0.42 due to limited share price upside. We reckon earnings should resume in FY21 once operations normalises further, backed by its contract wins this year. Our TP is derived by pegging FY21 EPS to 10x P/E multiple. Key upside risks: pick up in contract flows and quicker than expected normalisation. Downside risks include higher steel prices and labour shortages.

Source: Hong Leong Investment Bank Research - 31 Mar 2021