Rohas announced its first contract of FY21 entailing the fabrication and supply of power transmission towers with a contract sum of RM37m. We do not anticipate major hiccups given its pure fabrication and supply scope, an area the company is vastly experienced in. Rohas’s estimated fabrication outstanding orderbook stands at RM137m, 1.5x cover while EPCC stands unchanged at c.RM500m which translates into 2.1x cover. Cut FY21-22 earnings by -6.2% and -5.3% after revising EPCC replenishment assumptions to RM300m and downward revision in fabrication margins. Maintain HOLD with slightly lower TP of RM0.39 post earnings cut. TP is derived by pegging FY21 EPS to 10x P/E multiple.

NEWSBREAK

First job in FY21. Rohas announced that it has through its wholly owned subsidiary, Rohas-Euco Industries accepted an order from Larsen & Toubro Limited for the fabrication of 500 KV of overhead transmission towers connecting a 1,200 MW Power Generation Plant in Pulau Indah to the Olak Lempit main intake substation for an estimated contract sum of RM37m. The contract has commenced in April-2021 and will run for 12 months. The transmission line is approximately 37km long and will involve fabrication and supply of lattice towers.

HLIB’S VIEW

Decent job. As the contract entails a purely fabrication and supply scope of work, we foresee minimal hiccups for Rohas given its track record of delivering close to 500km of 500KV transmission lines throughout its operating history. Nevertheless, smooth progress would also be dependent on minimal hiccups on the part of the EPCC contractor. Although steel normally constitutes c.70% of production costs, recent price increases should have been factored in for this particular job.

Orderbook. With this job, Rohas’s estimated fabrication outstanding orderbook stands at RM137m, 1.5x cover on FY20 fabrication revenue. Meanwhile, its estimated outstanding orderbook for EPCC segment stands unchanged at c.RM500m which translates into 2.1x cover ratio of FY20 EPCC revenue (low base).

Forecast. Despite the contract win, we lower FY21-22 earnings by -6.2% and -5.3% after revising EPCC replenishment assumptions to a more conservative RM300m (from RM500m) and downward revision in fabrication margins.

Maintain HOLD, TP: RM0.39. Maintain HOLD rating with slightly lower TP of RM0.39 (from RM0.42) post earnings forecast adjustment. We expect earnings recovery in FY21 once operations normalises further, backed by its decent existing orderbook. Our TP is derived by pegging FY21 EPS to 10x P/E multiple. Key upside risks: pick up in contract flows. Downside risks include higher steel prices, labour shortages and lack of jobs.

Source: Hong Leong Investment Bank Research - 5 May 2021