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News & Analysis Singapore

Rotary Casts SATORP Woes Behind To Complete A Turnaround Story

March 4, 2014, Tuesday, 13:46 GMT | 08:46 EST | 18:16 IST | 20:46 SGT
Contributed by Shares Investment


It is the time of the year where listed companies are required to report their respective firm’s performance with a set of financial numbers. Same goes for Rotary Engineering but more importantly its full-year 2013 financial results painted a picture of positivity compared to a year ago, as it had casts behind the troubles of its Saudi Arabia SATORP project and, in turn, gained valuable “best practices”.

4Q13 results for Rotary Engineering rebounded as more projects secured at the start of the year were executed. Revenue for the fourth quarter ended 31 December 2013, more than doubled to $181.5 million compared with the corresponding quarter a year ago. The bulk of its revenue at 55 percent of total revenue was derived from Singapore, same as the corresponding quarter a year ago.

Net profit came to $5.2 million marking a reversal from a loss a year ago, as the turnaround story pan out on the back of a 10 percent gross profit margin. Though gross margins was at the lower end of management’s guided range, it was an improvement from the same quarter last year, where the group was impacted by costs overruns from the construction phase of the SATORP project.

For the full year net profit returned to the black to $20.7 million, largely due to a stronger gross margin at 12 percent, which was a significant improvement from the year before as well as higher other income and lower other operating costs due to an absence of an impairment made in 2012 on the investment and advances to an associate. Revenue rose 33.9 percent to $595 million due to the execution of major contracts secured at the beginning of the year.

To recap at the start of 2012, Rotary announced two new contracts worth about $42 million for the engineering, procurement and construction (EPC) of three spherical storage tanks and the fabrication and installation of pipe rack modules to be carried out on Jurong Island. There was also $46 million worth of contracts secured for civil works and piping and tankage to be carried out on Jurong Island. A standout was the $300 million contract from Tankstore for the EPC of a 800,000 cubic metre facility on Pulau Busing.

On the balance sheet, Rotary’s net cash position has been increasing steadily over a year and as at 31 December 2013 stands at $134 million, reflecting 37.5 percent of market capitalisation. Management said they are exploring new opportunities to use this excess cash to increase shareholder value in the coming quarters, but no further details was divulged. Total borrowings fell 28.2 percent year-on-year to $59.8 million from $83.2 million in 2012, lowering its debt-to-equity ratio to 0.28 times.

For FY13, Rotary is proposing a final dividend of $0.015 per share, reflecting a 2.4 percent dividend yield based on the closing share price of $0.63 as at 27 February 2014. Noticeably, though the company does not have a fixed dividend policy, its dividend payout ratio has been consistent for the past five years, with a dividend yield of 2 percent to 5 percent, illustrating its willingness to reward stakeholders.

Apart from the financials, some of the key takeaways from Rotary’s FY13 earnings briefing held on 27 February that would be interesting and impactful to its future performance include its drive for productivity and its developments in ASEAN and the Middle East.

- Rotary aims to focus on its productivity, which is centred on its “3M Strategy – Managing Manpower, Material and Machine”

- In Malaysia, Rotary is pre-qualified to bid for Petronas RAPID in Pengerang and is tendering for jobs in Gebeng, Pahang

- In Thailand, the group will be building seven spherical tanks and constructing 19 atmospheric tanks for IRPC Public Company’s Upstream Hygiene and Value Added project in Rayong. Potential catalyst includes tankage project in Map Ta Phut

- Turning to the Middle East, Rotary has set up a representative office in Oman to explore opportunities

- In Fujairah, United Arab Emirates, Rotary’s major project is the US$250 million EPC contract for Concord Energy’s Fujairah Oil Terminal. Potential catalyst includes Fujairah Oil Terminal phase 2.

After securing over $600 million worth of projects in Singapore, Malaysia, Thailand and Saudi Arabia in FY13, Rotary’s order book now stands at $694 million, as at 31 December 2013, representing about 1.2 times FY13 topline.

With a stronger financial statement and an upbeat outlook, could FY14 be a better year for the oil and gas infrastructure service provider?

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