Light at the end of the tunnel
With the loss-making SATORP project coming to an end and backed by a robust order book of S$1bn, Rotary’s turnaround has begun. The lessons learnt from SATORP’s failure will lead to prudent selection of projects and attention to cost management.
The peak valuation for Rotary could be S$0.92 (historical average forward P/E of 9.75x on CY15 consensus EPS forecast of 9.4 Scts). Dividend yields based on consensus forecasts are 4.6% for FY14 and 5.3% for FY15. Catalysts are new order wins and earnings recovery post SATORP.
Finishing up with SATORP
Rotary has endured challenging times with the undertaking of the SATORP project, where issues with external subcontractors and engineering redesign have led to major cost overruns. In FY12, SATORP losses attributable to Rotary were about S$108m. SATORP is now in its fifth year and will be completed by end-4Q13. With this, earnings growth is set to return at Rotary. Turnaround signs are evident with profit attributable to owners of the company improving from S$2.5m in 1Q13 to S$5.1m in 2Q13 and S$7.9m in 3Q13.
Billion-dollar order book
Rotary’s current outstanding order book is S$1bn. Most of these projects are similar to those Rotary has successfully delivered before. The order book provides topline visibility into FY14-15. Although new order opportunities are now limited in Singapore, there are other major opportunities in the US$620m RAPID package in Johor, Malaysia, as well as in the Middle East.
Strong balance sheet
Despite losses of S$80.4m in FY12, Rotary remains financially strong with a net cash position of S$98.7m (27% of mkt cap) as at end-Sep 13. With no sizeable capital expenditure foreseeable in the next few years, we believe the historical dividend payout ratio of 35% should continue.
Publish date: 10/12/13