Background: Rotary Engineering provides engineering, procurement, construction and maintenance (EPCM) services specialising in the oil and gas industry. It builds and maintains various process plants and modules for the petrochemical industries in Singapore and for offshore locations such as the Middle East.
Recent development: Despite the uncertain environment, Rotary achieved some S$110m in new contract wins over the past three months. However, its stock price has not been spared the market sell-down, with the counter declining by 30% in just the past two months. Its ADR over-the-counter listing in the US market has not done much to quell the flight, with the units trading in line with the local shares.
Key ratios…
Price-to-earnings: 10.1x
Price-to-NTA: 1.2x
Dividend per share / yield: 3.8cts / 6.3%
Net cash per share: $0.062 (including customer deposits)
Net debt as % of market cap: 10%
Share price S$0.595
Issued shares (m) 567.9
Market cap (S$m) 337.9
Free float (%) 60.2%
Recent fundraising Nil
Financial YE 31 December
Major shareholders REL Investments – 29.1%
YTD change -41.7%
52-wk price range S$0.595-1.09
Our view
More traction locally. Among the contracts Rotary has secured over the past three months is an EPC contract with Taiwan-based Chang Chun Group for its initial S$500m investment to build a petrochemical plant. Other notable wins are a S$13m tankage project and additional S$3m in maintenance works for Chevron. We see more scope for new Jurong Island contracts, especially with the opening up of the Banyan sector.
S$850m orderbook. Rotary’s orderbook is estimated at about S$850m, with around 90% of this still in Saudi Arabia. Given its established client base, we expect the company to gain further traction from the ongoing development and new investments at Jurong Island and Saudi Arabia, where it has a good track record for its projects there.
Uncertainty ahead. Due to the nature of its orderbook, Rotary is forecast to see a dip in earnings in FY11. The risk is that contract durations are relatively short, with the current orderbook lasting until the end of next year and new projects may be put on hold if global economic conditions worsen.
Valuations attractive, sentiment not. Rotary’s share price has lost 40% of its value since the beginning of the year, trading at just 6x forward PER. But we have yet to see any major detriment to earnings. Negative sentiment towards the stock would likely persist due to the cyclical nature of the industry that it operates in.
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