Rohas’s earnings should recover in FY22 from normalisation in operations. Outstanding orderbook stands at RM650m, which translates to 3.0x cover based on FY21 revenue. Margin pressure could persist on the back of high steel costs. Stronger contribution from associates could augment its earnings recovery in 2022. Going forward, management is expecting a better year aided by the Jendela/5G rollout but expects profit contribution to be sluggish until later in 2022.Tweak FY23 forecasts higher by 6%. Maintain HOLD with unchanged TP of RM0.29 after pegging FY22 EPS to 10x P/E multiple.

We Met With Management Recently With the Following Takeaways:

Orderbook. Rohas’s latest outstanding orderbook stands at RM650m (EPCC: RM450m; Towers: RM200m), which translates to 3.0x cover based on FY21 revenue. Its EPCC contracts are split as follows, power: 60%, water: 25% and telco: 15%. We believe execution of existing EPCC contracts remains exposed to costs pressure considering its still dominated by the power segment; notable batch of contract wins were in early 2020 prior to surging steel prices.

Associates. Rohas’s 49% owned associate in Lawe Sikap saw strong contribution due to unusually high rainfall in Indonesia resulting in higher throughput (max 110% of rated capacity vs 60-70% capacity factor). We expect normalisation in future quarters. In Vietnam, Rohas’s 30% owned associate has started to see higher industrial water usage following business normalisation. We expect higher contribution from its Vietnamese associate once the additional 40MLD capacity kicks in. However, bottom line accretion would also be offset by completion of its RM58m EPCC contract (construction was awarded to Rohas).

5G rollout. In DNB’s 5G rollout programme, Phase 1A was launched in Dec-21 featuring 500 rollout sites. Rohas managed to participate in some form or other in all 500 sites, featuring a combination of new telco pole supplies and augmentation of existing sites for higher weight bearing. The contract value for the 500 sites is worth RM5-6m. Looking at DNB’s long term plan, the rollout programme will involve slightly over 10k new sites by 2031 (~70% of sites by 2025).

Domestic water. After a long dry spell, Rohas managed to secure a RM85m domestic water contract in late 2021 involving the construction of pumping stations at two existing retention ponds and laying raw water pipelines to the Semenyih WTP. The company is currently participating in another water tender based in Melaka (indicatively larger than the aforementioned). Based on news reports, we gather that there are several WTP upgrading projects planned in the state. We believe the competition is stiff here.

Minimum wage. The recent move by the government to impose a higher minimum wage of RM1.5k/month is not expected to impact Rohas as the lower end of its wage structure is already at RM1.8k-RM2k/month.

Flooding. The company’s warehouses and storage areas was flooded in Dec-21 hampering tower deliveries. Despite this, Rohas is not guiding for any impairments from the episode. Deliveries have picked up since Jan and could see stronger sequential performance spurred by order backlog.

Forecast. Tweak FY23 earnings upwards by 5.9% and introduce FY24 earnings of RM15.9m

Maintain HOLD, TP: RM0.29. Maintain HOLD with unchanged TP of RM0.29. Our TP is derived by pegging FY22 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, labour shortages and execution risks.

Source: Hong Leong Investment Bank Research - 5 Apr 2022