Rohas’s FY22 core PATAMI of RM18.3m missed expectations at 94% of forecasts due to weak margins. We expect to see flattish performance from its EPCC segment moving forward having missed our contract wins expectations in FY22. As for the fabrication side, we expect some uptick with telco tower orders still strong. Cut FY23/24 forecasts -9.6%/-8.8%. Downgrade to HOLD with marginally lower TP of RM0.32.

Missed expectations. Rohas reported 4QFY22 results with revenue of RM111.5m (15.4% QoQ, 81.5% YoY) and core PATAMI of RM2.6m (-68.4% QoQ, vs core LATAMI of -RM5.8m in 4QFY21). This brings FYY22 core PATAMI to RM18.3m (vs core LATAMI of -RM14.2m in FY21). Results narrowly missed our expectations at 94% of full year forecasts. Results shortfall was due to weaker-than-expected margins.

Dividends. No dividends were declared (FY22: nil; FY21: nil).

QoQ. Core PATAMI fell by -68.4% with weaker margins offsetting the higher revenue (+15.4%). We attribute this to possibly some recalibration of margin expectations considering sustaining costs throughout the year. There was no material change in revenue mix during the quarter.

YoY. Core PATAMI returned to the black from core loss of -RM5.8m in tandem with normalised business activities. 4QFY21 was also marred by delivery delays caused by floods in that quarter.

YTD. Performance turned profitable from -RM14.2m in FY21 which was severely affected by loss of operating days from various disruptions in 2021.

Outlook. Outstanding orderbook for EPCC segment stands at c.RM300m which translates into 1.0x cover ratio of FY22 EPCC revenue. Its orderbook for the tower fabrication segment stands at about c.RM130m, representing 0.9x cover ratio on FY22 tower fabrication revenue. We expect to see flattish performance from its EPCC segment moving forward having missed our contract wins expectations in FY22 (RM65.7m vs RM150m). As for the fabrication side, we expect some uptick with telco tower orders still strong.

Forecast. Cut FY23/24 forecasts -9.6%/-8.8% after adjusting for miss in contract wins for FY22.

Downgrade to HOLD, TP: RM0.32. Downgrade to HOLD with marginally lower TP of RM0.32 (from RM0.33). Our TP is derived by pegging FY23 EPS to 8x P/E multiple, a fair multiple for small sized EPCC companies. With the rebound in share price, there is little upside to our TP. We reckon valuations for the stock is fair at this juncture trading at FY23/24 P/E multiple of 7.6x/8.0x. Downside risks include higher steel prices, labour shortages and execution risks.

Source: Hong Leong Investment Bank Research - 24 Feb 2023