Rohas’s 1QFY21 core loss of -RM2.1m were far below our expectations mainly due to weaker than expected productivity. Outstanding EPCC orderbook of c.RM460m translates into 1.9x cover ratio with tower orderbook amounting to RM70m translating into 0.8x cover. Near term earnings outlook would remain uncertain but should recover towards year end once productivity improves. Cut earnings by 10-16%. Maintain HOLD with lower TP of RM0.33. TP is derived by pegging FY21 EPS to 10x P/E multiple.

Below expectations. Rohas reported 1QFY21 results with revenue of RM54.6m (- 46% QoQ, -50% YoY) and core loss of -RM2.1m (against core loss of -RM1.7m in 4QFY20, core earnings of RM1.6m in 1QFY20). We deem the results to be below expectations falling way off our full year FY21 estimate of RM18.6m.

Dividends. No Dividends Were Declared.

Deviations. Results miss was topline driven at 11% of our initial estimates.

QoQ. Core loss widened to -RM2.1m (against core loss of -RM1.7m in 4QFY20). Despite a revenue decline of -46%, improvement in gross margins (+5.0ppts) offset the revenue decline. Nonetheless, higher MI led to wider loss (higher HGPT contribution).

YoY. 1QFY21 performance fell to core loss from core profit of RM1.6m a year ago falling in tandem with revenue decline of -50%. Both tower and EPCC topline dropped by -45% and -52% respectively. All of which resulted from loss of site productivity, lower orderbook and slower tower deliveries.

Orderbook. Estimated outstanding orderbook for EPCC segment stands at c.RM460m which translates into 1.9x cover ratio of FY20 EPCC revenue (low base). Tower fabrication orderbook stands at about c.RM70m, representing 0.8x cover ratio on FY20 tower fabrication revenue. Job replenishment has been slow mainly due to scarcity of jobs in the market due to Covid-19. Rohas has received permission from MITI to operate during the lockdown for one of its subsidiary. However, we understand that other divisions are still pending authorisation. We anticipate weaker numbers ahead due to this development.

Forecast. Cut FY21-23 earnings by -16.0%/10.9%/14.2% after reducing replenishment assumptions, margins and billings.

Maintain HOLD, TP: RM0.33. Maintain HOLD with lower TP of RM0.33 (from RM0.39) post-earnings cut. Near term earnings outlook would remain uncertain but could recover towards year end once productivity improves. Nonetheless, slow job replenishment would continue to impact the scale of earnings recovery. 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 - 1 Jun 2021