Rotary Engineering clinches S$110m worth of contracts in 3 months

The wins include a "multi-million contract" from Chang Chun Group, a Taiwan-based petrochemical company, for the construction of a chemical plant on Jurong Island.

OCBC believes Rotary will remain competitive in Singapore even as it pursues plans of global expansion.

Here’s more from OCBC:

S$110m contracts win. Rotary Engineering recently announced it has secured S$110m worth of contracts between Jul and Sep 2011. The wins include a "multi-million contract" from Chang Chun Group, a Taiwan-based petrochemical company, to undertake construction of a chemical plant on Jurong Island. Besides the Chang Chun deal, the group has also won 10 other contracts in Singapore, including a S$13m EPC tankage project for a power plant project by Bangalore- headquartered infrastructure company - GMR Group.

Over the past few years, Rotary has been participating in a number of overseas projects, most notably in the Middle East region. With the recent wins, we believe that Rotary remains competitive in Singapore context even as it pursues global aspirations.

Mega-deals needed. Compared with average quarterly revenue of about S$155m (over the past eight quarters), we believe that Rotary will need to secure larger EPC contract in order to replenish its order-book meaningfully. We examined the group's order-book trend and noted that it has been trending downwards since 3Q09 (end-2Q11: S$757m; end-3Q09: S$1.4bn) when it won the US$745m contract from SATORP to build a refinery tank farm at Jubail, Saudi Arabia.

For future mega-contracts, we believe they may emerge from the Middle East region (i.e. UAE and Saudi Arabia), where the level of oil and gas activities remains high and is relatively less affected by political unrest. In addition, Rotary could leverage on its successful execution of the SATORP project.

Start accumulating. Year-to-date, Rotary's share price has fallen by 43% compared to STI's 17% decline. We believe that the market is increasingly pricing in a recession and overly punishing the stock for its declining order book. Despite the decline, current order book (S$757m) would also still provide earning stability over the next 12 months. Beyond FY12, we believe its order-book should remain at S$700m-S$1b, of which a majority would come from Middle East projects. Its market-cap to order-book ratio at 0.53x is not excessive.

Thus, we believe that the current price (at 6x PER and 1x PBR, also about one standard deviation below their respective averages over the past 5 years) is well-priced for upside. Long-term investors willing to accumulate the stock now will also receive 6% yield for bearing the risk, assuming the group continues to pay dividends at 40% earnings. Upgrade to BUY with fair value estimate unchanged at S$0.66. The key risks include worsening geopolitical risk across the Middle East region, a sharp cut in capex by oil companies and project execution risks.

If you've been wondering whether SBR could work for your company — yes, probably.

A lot of the companies we partner with started as readers. They'd been following our coverage for a while, saw their own customers and competitors in it, and eventually asked the obvious question: could we do something with you? The answer is usually yes. The shape of it depends on what you're trying to do.

The options are broader than most people assume — thought leadership articles, sponsored content, industry summits across Southeast Asia, regional awards programmes, podcasts, and media placements in print and digital. Some partners use one channel; most use a mix. We figure out the right combination by starting with your brief, not with our rate card.

So if the question has been on your mind, here's the easy way to ask it.

We'll tell you honestly whether we can help, and how. It's a better use of everyone's time.

Book a meeting

| Or download the media kit (PDF)

240,000 senior readers quarterly in print Top 1,700 Singapore companies reached

7 markets across Southeast Asia