Share Price S$0.660
Target Price S$0.880
Key takeaways from results briefing
• Rotary reported a stronger set of results for 9M13. Net profit rebounded to S$16m from a loss in 9M12, mainly due to higher revenue and lower profit recognition from the negative-margin SATORP project.
• Total revenue rose 15% yoy to S$413.5m (9M12: S$360.1m) and gross profit improved to S$50.1m (9M12: S$87.6m gross loss).
• However, gross profit margins was slightly lower at 11% in the quarter as compared to 12% in 2Q13 as Rotary has to record most of the ending cost of the SATORP project. Management is confident that the project will be fully wound down and handed over by this year.
• Orderbook remained strong at S$847.0m as at 30 Sep 13, of which 67% is from Singapore and ASEAN and 33% from the Middle East. Balance sheet is also healthy with the company recording a net cash of S$99m, 26.4% of the current market cap.
• Management expects minimal earnings surprises as the size and nature of projects in the order book are similar to those Rotary has successfully delivered. Rotary is confident of delivering these projects safely, on time and on budget. Although the company expects cost to rise in the longer term, Rotary is looking to improve margins by increasing utilisation of the Batam yard for fabrication, streamlining procurement processes to save cost via bulk purchases and setting up dormitories at the site to trim total labour costs.
• Project pipeline for 2014 to remain buoyant. According to Mr Chia, there is still a strong pipeline of O&G projects in the region and UAE. Rotary has submitted a bid for the Petronas Rapid project with a contract size of approximately US$700m-1b. Petronas is currently evaluating the tenders and will only announce the results in 1Q14. In Myanmar, Rotary will also be exploring EPC projects around the Thilawa Port with the government allocating 33-34 plots of land for berths, tanks and refineries.
• Lastly, we adjust our 2013 revenue and net profit forecasts higher by 20.0% and 11.6% respectively to account for higher-than-expected revenue and profits in
• Maintain BUY and target price of S$0.88, based on a 3-year average PE of 10.6x on 2014F EPS of 8.3 S cents.
Publish date: 15/11/13