BT: Rotary Engineering Q2 gain up 11% to $13m

Published August 6, 2009

Rotary Engineering Q2 gain up 11% to $13m

By VEN SREENIVASAN

ROTARY Engineering, whose stock has soared in recent weeks after the company unveiled some $1.1 billion worth of new projects, yesterday unveiled an 11 per cent rise in April-June second quarter earnings to $13 million.

This came on the back of a 22 per cent rise in quarterly revenue to $164.2 million. The Q2 results brought net profit for the first half ended June 30 to $17.4 million, a decrease of 21 per cent from the $21.9 million seen for the previous corresponding period.

First-half revenue was up 18 per cent at $296 million. The H1 profit decline was due partly to higher operating costs, the company said. But Rotary's gross profit margin remained stable at about 20 per cent, and earnings per share stood at 3.1 cents for the first half, compared with 3.9 cents a year earlier.

For the second quarter, the lion's share of the company's revenue - about 71 per cent - came from Singapore with the rest coming from other Asean countries and other markets.

Going forward, Rotary's operations in Saudi Arabia are likely to contribute significantly to its revenues, due to its recent win and its intention to capitalise on its presence in that market.

Last month, it inked a US$745 million engineering, procurement and construction (EPC) contract to build a refinery tank farm in Jubail, Saudi Arabia.

The contract was awarded to Rotary and its joint venture company Petrol Steel Co Ltd by Saudi Aramco Total Refining and Petrochemical Company, a joint venture between Saudi Arabian Oil Company (Saudi Aramco) and Total SA.

With this contract and a few other recently-sealed deals, Rotary's order book now stands at a record $1.41 billion with projects lasting up to the end of 2012.

The company's chairman and managing director, Chia Kim Piow, said Rotary was mobilising to execute and deliver on recently-won contracts.

'In securing this win, we have raised the bar for ourselves,' he said. 'This achievement propels us onto another level and it helps to build our confidence as well as reinforce our presence in the broader Middle Eastern market.' In a strategic response to changing market conditions, Rotary has been progressively placing more resources into bigger construction-based projects.

The repositioning has widened its revenue source as it increasingly becomes a service provider to process plants. The company expects the EPC-construction revenue ratio to change further in favour of construction-based projects.

In the past, EPC made up 70 per cent of Rotary's income stream. The company's had net tangible assets of $217.0 million and a net cash position of $110.9 million.

The recent developments have prompted analysts to upgrade the stock. OCBC Investment Research has placed a 'buy' call on Rotary with a fair value of $1.26, up from its previous target of 81 cents.

'We do not expect Rotary to require significant debt financing as its projects are cash flow positive,' it noted. 'While M&As are an option with a net cash horde of $110 million, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into.'