Thursday, January 23, 2014

Rotary Eng Ltd - Leaving SATORP behind (AM)

Rotary Eng Ltd -
LAST CLOSE: S$0.640
FAIR VALUE: S$0.750
Leaving SATORP behind

On track for recovery in 2014. We met up with Rotary’s CFO Mr Phillip Choo and Financial Controller Mr Cheong Yew Meng to get an update on the company’s progress going into 2014. We are heartened to hear that the company is well on track in its path to recovery.

The SATORP project that was beset with issues in the last 2 years has achieved financial closure in 4Q13.


SATORP is history
The SATORP project has been handed over to Saudi Aramco as of Oct 2013 and is currently operational. Rotary will remain liable for any defects due to errors on its part throughout the 2‐years warranty period. We believe that management will make final provisions of another S$7m in 4Q13.

Focus on delivering existing projects
A key agenda for the company in FY14 is to improve on its execution for existing projects. Management has assured us that current projects are running smoothly with minimal operational hiccups. Costs are well under‐control with its strategy of engaging labor intensive fabrication work in its Batam workshop panning out nicely. We expect gross margins to creep up to the 14‐16% region for 1H14 with possible upward revisions in 2H14 due to potential writebacks from the Fujairah Oil Terminal project upon its completion.

Last major orderbook win in 2Q13
The lack of new order wins has been worrisome as existing orderbook gets depleted. We believe that Rotary ended FY13 with outstanding orderbook in the region of S$500‐550m. The RAPID project remains the single largest order win potential at around S$700m‐S$1b. Rotary is quietly confident of winning the bid given that it is one of the few EPC contractors with a Petronas license. The experience gained from the SATORP project will also stand the company in good stead given the similarities of both projects. Results of the winning bid will likely be announced in 3Q14.

Valuation
The company is looking to announce its 4Q13 results in late February. We remain confident that the company will report a set of satisfactory result which shows continuous improvement in its core earnings. Target price remains at S$0.75 based on 10X FY14 P/E. Maintain BUY.


Source/Extract/Excerpts/来源/转贴/摘录: AmFraser-Research,
Publish date: 20/01/13

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