Rohas’s 1HFY22 core PATAMI of RM7.4m was below expectations at 43% of forecasts due to weaker contributions from both EPCC and tower segments. A key contributor to the drag is necessary refurbishment of its galvanising plant. The plant has since restarted in July-22. We expect both EPCC and tower segment to normalise upwards in coming quarters with order backlogs piling up and kick start of its water project in 3QFY22. Maintain forecasts but downgrade to HOLD with unchanged TP of RM0.32. Our TP is derived by pegging mid-FY22 EPS to 8x P/E multiple. With share price recovering over the past few months, we reckon the market has adequately priced in Rohas’s earnings recovery prospects.

Below expectations. Rohas reported 2QFY22 results with revenue of RM90.0m (-34.8% QoQ, +77.4% YoY) and core PATAMI of RM0.6m (-91.2% QoQ, core LATAMI of -RM2.1m in 2QFY21). This brings 1HFY22 core PATAMI to RM7.4m (vs core loss of -RM4.2m in 1HFY21). Results missed our expectations at 43% of full year forecasts. Nonetheless we take note of potentially stronger sequential performance in 2HFY22 as 2QFY22 was hit by necessary refurbishment of its galvanising plant resulting in inefficient outsourcing.

Dividends. No Dividends Were Declared.

QoQ. Core PATAMI decreased by -91.2% as both EPCC and tower segments exhibited lower revenue of -35.5% and -32.1% respectively. As mentioned above, operations were disrupted by a necessary refurbishment of galvanising plant resulting in finishing works being outsourced for two months. For the EPCC side, there were some delays in resumption of works and its water project in Selangor was delayed to 3QFY22.

YoY/YTD. Performance turned profitable from -RM2.1m in 2QFY21 as a result of stronger contribution from both EPCC and tower segments. Recall that 2QFY21 was also marred by the imposition of MCO3.0. On a YTD basis, the above reasons apply.

Outlook. Estimated outstanding orderbook for EPCC segment stands at c.RM300- 350m which translates into ~2x cover ratio of FY21 EPCC revenue (low base). Estimated tower fabrication orderbook stands at about c.RM170m, representing c.3.5x cover ratio on FY21 tower fabrication revenue. We expect both EPCC and tower segment to normalise upwards in coming quarters with order backlogs piling up due to refurbishment (plant has restarted in July). Its EPCC may also exhibit sequentially stronger numbers with kick start of its water project.

Forecast. While the results missed, we keep forecasts unchanged as there is scope for a stronger 2HFY22.

Downgrade to HOLD, TP: RM0.32. Downgrade to HOLD with unchanged TP of RM0.32. Our TP is derived by pegging mid-FY22 EPS to 8x P/E multiple. With share price recovering over the past few months, we reckon the market has adequately priced in Rohas’s earnings recovery prospects. Stock trades at a fair FY22/23/24 P/E multiple of 9.0x/7.5x/8.1x. Key upside risks: pick up in contract flows. Downside risks include higher steel prices, labour shortages and execution risks.

Source: Hong Leong Investment Bank Research - 25 Aug 2022