Rotary Engineering

UOBKayhian on 18 Jul 2013

Investment Highlights

• Rotary provides fully integrated engineering design, procurement, construction and maintenance (EPCM) services to the oil and gas (O&G), petroleum, petrochemical and pharmaceutical industries.
•  The group has projects in Malaysia, Thailand, Indonesia, India, China,  Australia, Saudi Arabia and the United Arab Emirates. Some of the major projects that Rotary has undertaken include the Universal Terminal in Singapore and SATORP JERP package 6 in Saudi Arabia. 

Our View

• Bottoming out, silver lining along the horizon. Rotary has gone through a really rough patch in 2012 with the company reporting an S$80.4m loss attributable to shareholders in 2012 compared to a S$31.0m profit a year ago. This is largely due to a major cost over-run in the SATORP project that led to the recognition of negative gross margins. Despite the loss in 2012, the company dished out a dividend of 0.5 S cents to reward shareholders, giving a yield of 1%. The company has since regained its footing having clinched several contract wins in 1H13, such as the S$300m oil terminal in Pulau Busing and a total of S$102m for a few projects on Jurong Island. As at 31 March, the company had an order book of S$756m to be completed within 18-24 months.

• Chairman and MD Mr Chia remained confident on outlook despite keen competition. According to the Chairman, there is still a strong pipeline of O&G projects in the region and UAE. Only recently, Petronas has called for a tender under Package 8 of the Refinery and Petrochemicals Integrated Development (Rapid) project in Johor, Malaysia. Although the contract value is not mentioned, the package 8 is for the engineering, procurement, construction and commissioning (EPCC) of the cumene, phenol and bis-phenol A production units of the project. Rotary has been pre-qualified for this project.

• S$82m deficit remains a risk. Rotary has this non-controlling deficit sitting on its balance sheet as the 51%-owned SATORP JV has run into steep losses in the SATORP project. Although the auditors are convinced that Rotary did not have to make this impairment in 2012, recovering this amount from the JV partner may also take a while.