This article first appeared in The Edge Financial Daily on April 20, 2018

Rohas Tecnic Bhd
(April 19, RM1.35)
Maintain buy with an unchanged target price (TP) of RM1.74: We recently met up with Rohas Tecnic Bhd’s management. Its engineering, procurement, construction and commissioning (EPCC) order book currently stands at around RM690 million (representing around 5.3 times cover ratio of its financial year 2017 [FY17] EPCC revenue). This is expected to provide a strong boost to Rohas’ earnings growth for the next two years. Rohas is targeting for order-book replenishment of RM500 million this year and has achieved 50% of the target year to date (YTD).

We understand that the bulk of the new jobs will come from Bangladesh as newly acquired HG Power Transmission (HGPT) is one of the top three EPCC companies in Bangladesh’s power transmission sector. HGPT is expected to benefit from further investment in power transmission and distribution infrastructure which is estimated at US$20 billion (RM77.8 billion) in order for the country to generate 60,000 megawatts (mw) of electricity by 2041.

The balance of Rohas’ tower fabrication order book is about RM165 million, representing 0.93 times cover ratio of their FY17 fabrication business revenue. We deem this level of cover ratio sufficient to maintain the growth momentum as tower fabrication jobs generally are more short-term and recurring in nature. Going forward, we expect more tower fabrication supply contracts from Sabah and Sarawak due to abundant power infrastructure investment in Sarawak.

We understand that the management does not discount the possibility of growing the company further through acquisitions. The growth focus of the company is expected to be in the area of telecommunication tower EPCC. Currently, Rohas is involved in telecommunication tower supply and installation jobs and the management is looking forward to expand its service offering to become a full-fledged infrastructure engineering company.

Forecast is maintained with an upward bias as our full-year order book replenishment assumption for HGPT of RM400 million is less than management’s internal target of RM500 million. However, we prefer to remain conservative at this juncture.

Maintain “buy” recommendation with an unchanged TP of RM1.74. TP is based on unchanged 16 times price-earnings multiple pegged at FY18 earnings. We like Rohas for its exposure to Asean, which is one of the fastest-growing economic regions in the world. Infrastructure investment needs are expected to be robust in the foreseeable future and this will generate steady demand for the products of the company. — Hong Leong Investment Bank Research, April 19