Rotary Engineering: Priming David for Goliath’s world
By Kelly Chia Wed, 5 Aug 2009, 14:58:01 SGT
Summary: Rotary Engineering (Rotary) reported 2Q09 this morning with revenue of S$164.2m (+22% YoY, +24.5% QoQ) and bottomline of S$13m (+11%YoY, +200% QoQ).
2Q results were inline with our expectations with a final wind-down of its previous tranche of projects.
We do not expect Rotary to require significant debt financing as its projects are cash flow positive.
While M&As are an option with a net cash horde of S$110m, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into.
We opine that soon-to-be listed competitor, PEC Group (Not Rated), would not currently pose a threat to Rotary’s market in the Middle East.
With the anticipated surge in earnings, we have doubled our dividend forecasts upwards for FY10F to 4 S cents (prev. 2 S cents).
With better clarity on SATORP, more regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 12x FY10F EPS (prev. 8x). Iterate BUY for Rotary with a fair value of S$1.26 (prev. S$0.81).
Better sequential performance.
Rotary Engineering (Rotary) posted 2Q09 results with revenue of S$164.2m (+22% YoY, +24.5% QoQ) and bottomline of S$13m (+11%YoY, +200% QoQ); 2Q results were inline with our bottomline estimates but a final phase wind-down of its previous tranche of projects bettered our topline forecasts.
Gross margins were at the lower end of its guided 18-22% range as revenue are recognised from current projects that were secured in 2008’s “cost conscious environment”.Good balance sheet. Historically, Rotary’s projects have largely been self-financing, even for its previous mega project of the Universal Terminal.
As such, we do not expect Rotary to require additional significant amounts of debt except for trade financing for intermittent gaps.
While M&As are an option with a net cash horde of S$110m, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into.Competitor listing. PEC Group (Not Rated) – soon to be listed on the SGX mainboard (priced at 4x FY09F PER) - intends to have a fabrication facility in the Middle East by 2010 to compete for projects.
Currently, we think that PEC’s presence should not pose a significant challenge until it firmly establishes its working relationship with its JV partners and facility.
(prev. 2 S cents). This brings the yield to 3.5%, a respectable return for an industrial-based company.
Calculated expansion pays off; Maintain BUY. Rotary arrived at this stage with much foresight in its manpower training and calculated Middle East investment.
We have adjusted our estimates to cater to the US$745m contract value (prev. US$700m) along with increased variation orders for its current tranche of projects.
Our previous concerns on the dilutive effects of the JV have been alleviated with half of the US$745m to be performed directly by Rotary instead of its JV.
Accretion of SATORP earnings is now modelled over 3.5 years (prev. 4 years). With better clarity on SATORP, more regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 12x FY10F EPS (prev. 8x).
Iterate BUY for Rotary with a fair value of S$1.26 (prev. S$0.81).
Showing posts with label Stock - Rotary Engineering. Show all posts
Showing posts with label Stock - Rotary Engineering. Show all posts
Saturday, August 8, 2009
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.'
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.'
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