Rotary Engineering

[Aspellian]

Rotary Engineering Q2 gain up 11% to $13m
ROTARY Engineering, whose stock has soared in recent weeks after the company unveiled some $1.1 billion worth of new projects, yesterday unveiled an 11 per cent rise in April-June second quarter earnings to $13 million.


This came on the back of a 22 per cent rise in quarterly revenue to $164.2 million.

The Q2 results brought net profit for the first half ended June 30 to $17.4 million, a decrease of 21 per cent from the $21.9 million seen for the previous corresponding period. First-half revenue was up 18 per cent at $296 million.

The H1 profit decline was due partly to higher operating costs, the company said. But Rotary's gross profit margin remained stable at about 20 per cent, and earnings per share stood at 3.1 cents for the first half, compared with 3.9 cents a year earlier.

For the second quarter, the lion's share of the company's revenue - about 71 per cent - came from Singapore with the rest coming from other Asean countries and other markets.

Going forward, Rotary's operations in Saudi Arabia are likely to contribute significantly to its revenues, due to its recent win and its intention to capitalise on its presence in that market.

Last month, it inked a US$745 million engineering, procurement and construction (EPC) contract to build a refinery tank farm in Jubail, Saudi Arabia. The contract was awarded to Rotary and its joint venture company Petrol Steel Co Ltd by Saudi Aramco Total Refining and Petrochemical Company, a joint venture between Saudi Arabian Oil Company (Saudi Aramco) and Total SA.

With this contract and a few other recently-sealed deals, Rotary's order book now stands at a record $1.41 billion with projects lasting up to the end of 2012.
The company's chairman and managing director, Chia Kim Piow, said Rotary was mobilising to execute and deliver on recently-won contracts.

'In securing this win, we have raised the bar for ourselves,' he said. 'This achievement propels us onto another level and it helps to build our confidence as well as reinforce our presence in the broader Middle Eastern market.'

In a strategic response to changing market conditions, Rotary has been progressively placing more resources into bigger construction-based projects. The repositioning has widened its revenue source as it increasingly becomes a service provider to process plants. The company expects the EPC-construction revenue ratio to change further in favour of construction-based projects.

In the past, EPC made up 70 per cent of Rotary's income stream.

The company's had net tangible assets of $217.0 million and a net cash position of $110.9 million.

The recent developments have prompted analysts to upgrade the stock. OCBC Investment Research has placed a 'buy' call on Rotary with a fair value of $1.26, up from its previous target of 81 cents.

'We do not expect Rotary to require significant debt financing as its projects are cash flow positive,' it noted. 'While M&As are an option with a net cash horde of $110 million, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into.'

[Aspellian]

TOL: In a sea of red today as STI dropped 60points and counting - Rotary actually holds up and has a green arrow up.
Sellers limited.
now market jittery, wont buy any more equities. but as the cards are reshuffled, will allocate some funds to rotary eng.

[Musicwhiz]

TOL: In a sea of red today as STI dropped 60points and counting - Rotary actually holds up and has a green arrow up.
Sellers limited.
now market jittery, wont buy any more equities. but as the cards are reshuffled, will allocate some funds to rotary eng.

Well, if you are a net purchaser of equities for the long-term, you would very much desire lower prices. High prices are a bane to investors.

[Aspellian]

TOL: In a sea of red today as STI dropped 60points and counting - Rotary actually holds up and has a green arrow up.
Sellers limited.
now market jittery, wont buy any more equities. but as the cards are reshuffled, will allocate some funds to rotary eng.

Well, if you are a net purchaser of equities for the long-term, you would very much desire lower prices. High prices are a bane to investors.

Prices are a function of demand and supply.
An investor may deem a certain stock as overvalued - maybe his intrinsic calculation or assumptions are wrong or assumptions?
But you did brought up a point - expected length of investment.
Warrent Buffet - even if market close for 5-10 yrs, he will be happy to hold onto his share certificates without losing sleep
Value investors - longer term - intrinsic value prob based on 5 years forcast
Traders - minute, hour, day, weeks
Rojak investor - aka me - medium term fundamentals but very easily swayed by mood of market (mid-term trend; but can change anytime). always hoping to time the market and pray that it is right

[Aspellian]

Interests in O&G service companies are strong.
I will deemed Rotary Eng a "leader" compared to PEC or Hiap Seng or AusGroup.
Even though price is much higher for Rotary (now $1.2, hist.PE of 14), but that is what you get if you want to buy premium.
Let's ride the up-wave while it last.

*You can't expect Florida Fruit Juice to be cheaper than Sunkists right?*

<vested>

[winston]

Not vested. From OCBC:-

Good balance sheet. Historically, Rotary's projects have largely been self-financing, even for its previous mega project of the Universal Terminal. As such, we do not expect Rotary to require additional significant amounts of debt except for trade financing for intermittent gaps.

While M&As are an option with a net cash horde of S$110m, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into. In a blue sky scenario, we postulate that targets might be skewed towards acquiring expertise in more complex process and plant design engineering in the likes of Fluor and Foster Wheeler.

Good yield. After its record earnings in 2007, Rotary gradually reduced its dividend payout in line with its bottomline performance. With the anticipated surge in earnings, we highlight our doubled dividend forecasts for FY10F to 4 S cents. This brings the yield to 3.5%, a respectable return for an industrial-based company.

Raising Fair value; maintain BUY. With good progress on the SATORP project, more regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 13x FY10F EPS (prev. 12x). Iterate BUY for Rotary with a fair value of S$1.37 (prev. S$1.26).

[Aspellian]

Not vested. From OCBC:-

Good yield. After its record earnings in 2007, Rotary gradually reduced its dividend payout in line with its bottomline performance. With the anticipated surge in earnings, we highlight our doubled dividend forecasts for FY10F to 4 S cents. This brings the yield to 3.5%, a respectable return for an industrial-based company.

Raising Fair value; maintain BUY. With good progress on the SATORP project, more regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 13x FY10F EPS (prev. 12x). Iterate BUY for Rotary with a fair value of S$1.37 (prev. S$1.26).

I have a feeling when Rotary's share price reach $1.35, the analyst will tweak his report to PE of 14X-15X to take into account improved equity risk appetite!! why always this musical chair of upgrading, downgrading according to market movement? Does analyst reports really add value? Is it a chicken and egg issue of target price set with BUY call, target price reach, target price is then reset to be even higher...

same as M&A deals - those funds/corporate or PE guys always like to use the latest or average PE transactions as a guage... so M&A valuation gets higher and higher (which was what happened in 2006/2007/ 1st half 2008)... until the music stops and the bomb explodes...

too complicated for my simple mind or how to reconcile who is chicken, who is egg??

[millionairemind]

October 30, 2009, 7.59 pm (Singapore time)

Rotary wins S$20 mln Shell contracts

By ANGELA TAN

Rotary Engineering Limited (Rotary) has secured two contracts worth a total of S$20 million from Shell Eastern Petroleum (Pte) Ltd (Shell) for revamp works at one of the process units on Pulau Bukom and for maintenance works at Shell Chemical's plants on Jurong Island.

The deals clinched through Rotary's subsidiary and maintenance arm, Rotary IMC Pte Ltd, have no impact on the current year's financial performance.

[Musicwhiz]

A good company and well-managed company, but not at an attractive price. A pity.

[winston]

Dear All,

I've moved the various discussions on "Margin of Safety" into the "Value Investing" thread.

Take care,
Winston