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This article first appeared in The Edge Financial Daily on January 23, 2020

Rohas Tecnic Bhd
(Jan 22, 61 sen)
Maintain buy with an unchanged target price (TP) of 79 sen:
Rohas Tecnic Bhd announced on Tuesday that it had been awarded an engineering, procurement, construction and commissioning (EPCC) contract by Phu My Vinh Construction and Investment Corp worth RM58.4 million for Phase 2 of the Hoa Khanh Tay Water Supply System.

The scope of work includes design and installation of transmission main and secondary pipelines as well as expansion of water treatment plant capacity from 40 million litres a day (MLD) to 80MLD. The contract spans a period of 24 months.

The company has previously guided for a job award in relation to the expansion of the water treatment plant. This brings its EPCC order book to around RM430 million which translates into a decent 1.9 times cover on its EPCC revenue for the financial year ended Dec 31, 2018 (FY18). Its outstanding tower fabrication order book stands at RM200 million translating into 1.1 times cover on FY18 tower fabrication revenue.

Rohas has submitted tender for a transmission line from Butterworth to Penang Island which will run parallel to the Penang Bridge (estimated project value: RM1 billion). There are five bidders: from China, India, Australia, Rohas Tecnic Bhd-Muhibbah Engineering (M) Bhd and MMC Corp Bhd-Malaysian Resources Corp Bhd. The joint venture structure between Rohas and Muhibbah has not been fixed but will likely be based on job scope breakdown (civil marine works will be less than 50% of project value).

Having undertaken the widening of Penang Bridge before, we reckon Muhibbah is a good partner for Rohas (which will then undertake the transmission line portion of works).

 Overall, the company currently has an outstanding tender book of jobs close to RM1 billion.

Rohas 49%-owned mini-hydropower plant in Indonesia is expected to start contributing in FY20, a delay from the second quarter of FY19 due to unusual raining reason. Management guides that the earnings contribution to Rohas is expected to be RM4 million annually.

We reckon with the completion of its legacy contracts, earnings should grow moving forward, driven by better margins at HG Power Transmission Sdn Bhd, new EPCC jobs and stronger tower orders. Our TP is pegged at 12 times price-earnings ratio multiple based on FY20 earnings. — Hong Leong Investment Bank Research, Jan 22

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