Rohas’s 9MFY20 core loss of -RM1.1m were below our expectations mainly due to poorer than expected margins. Outstanding EPCC orderbook of c.RM570m translates into 1.7x cover ratio with tower orderbook amounting to RM130m translating into 1.0x cover. Operational normalisation continues to take time. Cut FY20-21 earnings by 20-65%. Maintain BUY rating with lower TP of RM0.42, pegged to an unchanged 10x PE multiple based on FY21 earnings.

Below expectations. Rohas reported 3QFY20 results with revenue of RM74.3m (+72% QoQ, -39% YoY) and core earnings of RM0.5m (against core loss of -RM3.2m in 2QFY20, -88% YoY). This brings 9MFY20 performance to marginal core loss of - RM1.1m (against core earnings of RM17.9m in 9MFY19). We deem the results to be below expectations falling way off our full year FY20 estimate of RM14.6m.

Dividends. DPS of 0.50 sen was declared during the quarter (9MFY20: 0.50; 9MFY19: 1.0 sen).

Deviations. Despite revenue meeting expectations, results shortfall came from lower than expected margins.

QoQ. Core earnings clawed back to marginal profit of RM0.5m (against core loss of - RM3.2m in 2QFY20). Operational improvements were mainly attributed to low base in 2QFY20 which saw the imposition of MCO. The company resumed operations gradually in late May.

YoY. Core earnings fell by 88% in-line with revenue decline of -39%. Both fabrication and EPCC segments saw revenue decline of -27% and -44% respectively. Normalisation on all segments continues to be impacted by SOP compliance.

YTD. 9MFY20 sustained a core loss of -RM1.1m (from core earnings of RM17.9m in 9MFY19). Major driver of the poorer performance was halting of domestic operations for roughly 2.5 months in 1HFY20. Foreign EPCC works at Laos and Bangladesh were also hampered as both went into lockdown on 30-March and 26-March respectively.

Orderbook. Current orderbook for EPCC segment stands at c.RM570m which translates into 1.7x cover ratio of FY19 EPCC revenue. Tower fabrication orderbook stands at about c.RM130m, representing 1.0x cover ratio on FY19 tower fabrication revenue. Tenderbook stands lower at RM570m due to slow job flows as well as removal of dated tenders

Forecast. Cut FY20-21 earnings by -65.5% and -20.3% after reducing our margin assumptions.

Maintain BUY, TP: RM0.42. Maintain BUY with lower TP of RM0.42 (from RM0.50). Our TP falls to RM0.42 (from RM0.50) after earnings adjustments. We reckon earnings could be in an upswing next year once operations normalises further, backed by its contract wins this year.

Source: Hong Leong Investment Bank Research - 26 Nov 2020