Earnings visibility for Rohas Tecnic


  • Stocks Analysis
  • Saturday, 09 Dec 2017

Rohas Tecnic Bhd appears to be in a sweet spot right now.

With expenditure on infrastructure and utilities in the region on the rise amid a booming economy, the engineering and construction company seems well positioned to see an increase in its orderbook.

According to Rohas Tecnic executive director Wong Mun Keong, the group is looking to raise the value of its job replenishment by at least 25% by the end of 2018, backed by strong demand from the Asean region.

“Our order book is already close to RM800mil currently. We hope to be able to build it to RM1bil by the end of next year,” Wong says.

“The likelihood is that this growth will come mainly from Malaysia, Laos, Indonesia and Bangladesh, although we are also active in Vietnam and the Philippines ... our prospects are linked very much to domestic and regional expenditure on infrastructure and utilities,” he tells StarBizWeek in an email.

 

Rohas Tecnic - which is a product of a reverse takeover (RTO) of Tecnic Group Bhd by Rohas-Euco Industries Bhd (REI) - is principally involved in the fabrication of steel towers used for power transmission and telecommunications. The group is also involved in the engineering, procurement, construction and commissioning (EPCC) activities for power, telecommunications and water-related projects.

At present, the bulk of Rohas Tecnic’s order book is made up of contracts from its wholly owned subsidiary REI, which represents the tower fabrication and water-related EPCC divisions, as well as jobs from its newly acquired 75% owned-subsidiary HG Power Transmission Sdn Bhd (HGPT).

Going forward, new tower fabrication jobs from Malaysia and water-related EPCC projects in the region are expected to enhance the group’s job replenishment prospect.

“Our traditional core business in the fabrication and supply of towers will be underpinned by strong domestic demand in the power sector,” Wong says.

“In addition, we are also leveraging on our track record to source for new contracts in the water engineering sector,” he adds.

The company is currently bidding for about RM50mil worth of tower projects. It is also pursuing RM300mil worth of water-related EPCC projects, as well as RM350mil worth of contracts in Malaysia and Bangladesh through HGPT.

Rohas Tecnic’s expanding orderbook, which enhances its medium-term earnings visibility, has put the company in a favourable light among some investors.

Since making its debut as the newly relisted company post-RTO on Bursa Malaysia on March 17, 2017, Rohas Tecnic has seen its shares gain about 57% as of yesterday.

The counter closed four sen higherat RM1.39 yesterday, valuing the company at 2.3 times its book value and about 13 times the estimated earnings for the financial year ending Dec 31, 2018.

According to sources, some new funds have recently bought into Rohas Tecnic in a sale of shares by Navis Capital.

 

Filings yesterday showed the private equity firm had disposed of a block of 45 million shares, or 9.52% stake, in Rohas Tecnic at an undisclosed price. Following the disposal of this block of share, Navis Capital would still own 27.8 million shares, or 5.88% stake, in Rohas Tecnic.

Navis Capital, which originally held a 15.4% stake in the company via PT Safe Tower Systems Sdn Bhd, was the second-largest shareholder in Rohas Tecnic. It surfaced as a substantial shareholder in Rohas Technic following the latter’s acqusition of HGPT.

Filings show Tan Sri Wan Azmi Wan Hamzah and his spouse Puan Sri Nik Anida Nik Manshor remain the largest shareholder with direct and indirect stakes amounting to 51.7% in Rohas Tecnic as of Oct 17.

The prominent businessman was the key figure who led REI to undertake an RTO on Tecnic in 2015 that eventually led the formation of the current Rohas Tecnic.

REI was a steel structure fabricating company that was once listed on the local bourse, before it was taken private by Wan Azmi about 10 years ago. The company was primarily involved in the design, fabrication and erection of power transmission and telecommunication towers, as well as steel structures for power substations.

Tecnic, on the other hand, was a Practice Note 16 company after it sold off its entire plastics manufacturing business to SKP Resources Bhd in 2014. To maintain its listing status on Bursa Malaysia, the company was forced to acquire a new business.

The subsequent year saw REI initiating an RTO on Tecnic in a RM200mil deal.

The exercise and related proposals were subsequently completed in March this year.

 

New life

The corporate restructuring has certainly given Rohas Tecnic a new lease of life.

In May, the group secured a RM300mil contract in Laos to supply and construct transmission lines, substations and distribution lines. The two-year project is expected to start contributing to the group’s earnings by the fourth quarter of this year.

Similarly, HGPT is also expected to start contributing to the group’s bottom line in the fourth quarter of 2017.

Rohas Tecnic completed its acquisition of HGPT, an EPCC company in the power sector whose exposure spans domestic and regional markets, for RM91.6mil in mid-October.

Essentially, it views HGPT as a launch pad to strengthen its presence in the regional market, especially Indonesia and Bangladesh. Last month, HGPT was awarded a RM54mil transmission line project in Bangladesh. In total, the company has an outstanding order book of RM400mil.

According to Wong, contributions from HGPT as well as new EPCC contracts that the company secured in Laos and Indonesia this year will be the major growth drivers for Rohas Tecnic in 2018.

On potential mergers and acquisitions, Wong notes, “as a newly re-listed group we have quite a lot on our plate already”.

“Nevertheless, we are always exploring for ways to grow be it organically or via acquisitions into areas within our core competencies,” he says.

At present, Hong Leong Investment Bank (HLIB) Research is the only brokerage that covers Rohas Tecnic.

It rates Rohas Tecnic a “buy” with a target price of RM1.69 based on 16 times the estimated earnings for 2018.

That represents a potential upside of about 25% from the current level.

HLIB Research says it likes Rohas Tecnic for the group’s 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,” HLIB Research says in its recent report.

“Moreover, the acquisition of HGPT is expected to open up more EPCC contract opportunities for Rohas Tecnic in new markets,” it adds.

The brokerage expects stable EPCC contract flows for Rohas Tecnic due to the essential nature of infrastructure industry in emerging markets.

HLIB also expects Rohas Tecnic to be admitted into the syariah-compliant list next year upon the full release of its full-year 2017 audited financial results.

Rohas Tecnic posted a net profit of RM7.1mil on revenue of RM46.3mil for the third quarter ended Sept 30, 2017. Its earnings per share stood at 1.78 sen per share.

The group declared an interim dividend of one sen. For the cumulative period, Rohas Tecnic registered a net loss of RM8mil, or 1.99 per share, on revenue of RM153.2mil for the nine-month period. The group attributed the losses to one-off non-operating expenses.

The group noted that on completion of the RTO in March, it incurred a one-off charge in the first quarter of the year a reverse acquisition listing expense of RM4mil and share-based payment expense of RM21.4mil to its consolidated statement profit or loss and other comprehensive income.

If not for the reverse acquisition listing expense and share-based payment expense, the group would have achieved a net profit of RM17.4mil for the first nine months of 2017. Rohas Tecnic’s power transmission tower business accounted for 67% of the group’s total revenue for the nine-month period, while the telecommunications tower segment contributed 12% and the EPCC segment 17% to group revenue. The remainder came from other businesses.

As at end-September 2017, Rohas Tecnic’s cash and cash equivalents balance stood at RM53.3mil.

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