Reports » Singapore

Singapore stock market and companies daily report (Rotary Engineering, DBS and Kexim) (September 25, 2012)

Contributed by Shares Investment

August Inflation Ebbed Leaving Room For Monetary Manoeuvre
Even though Singapore’s inflation rate continued rising 3.9 percent year-on-year, faster than the 3.6 percent median forecast of 13 economists Reuters polled, the inflation figure in August was on a downtrend after edging down from July’s 4 percent and the lowest the country state has seen since November 2010. The Monetary Authority of Singapore’s (MAS) measure of core inflation, which excludes accommodation and private road transport fell to 2.2 percent in August from 2.4 percent in July, largely due to lower services inflation. Core inflation is expected to stay close to its current level and produce an average of 2.5 to 3 percent for the whole year. As for headline inflation which includes the two most inflationary items (accommodation and private road transport which accounts for 60 percent of headline inflation), MAS and Ministry of Trade and Industry expects it to stay higher than a year earlier as COE premiums stay high and imputed rentals continue to add to inflation as HDB leasing contracts are renewed at higher rentals.
Significance: As August inflation rates receded, it leaves room for MAS to ease monetary policy slightly next month – a move widely expected after a surprise plunge in key exports last month heightened risks of a possible technical recession in the coming quarter.

Hit By Saudi Arabia Project Cost Woes Rotary Issues 3Q12 Profit Warning
Rotary Engineering, an oil and gas industry service provider, notably in the Asia Pacific and the Middle Eastern regions issued a profit warning yesterday. Rotary said that it expects to record a net loss for 3Q12 and 9M12 ending 30 September 2012 and, consequently, a full year net loss. The company attributed the expected losses to the Saudi Aramco Total Refining and Petrochemical Company (Satorp) project in Saudi Arabia, saying that it has experienced problems towards the end of the construction phase, racking up extra costs which significantly ate into gross margin. In its 1H12 results announcement ended 30 June 2012, Rotary had explained that more sub-contractors had to be brought in at higher cost after the original civil sub-contractors could not meet the schedule. In addition, late changes to the engineering design also resulted in major civil rework, hence, piping, electrical and instrumentation activities were also affected.
Significance: The Satorp project which is a US$745 million contract involving 62 atmospheric storage tanks and eight bullet tanks has since raised Rotary’s profile in the Middle Eastern market (which contributed 53 percent of its revenue of $244.8 million in 1H12) but has also taken a toll on its bottom line.

DBS and Kexim Penned Strategic Alliance Agreement
DBS Bank and Export Import Bank of Korea (Kexim) have struck a strategic alliance for greater cooperation in infrastructure and project financing. The Memorandum of Understanding signed yesterday will see both DBS and Kexim exchange information, cooperate on infrastructure projects and second staff to each other. Lim Wee Seng, head of project finance at DBS said: “In the area of infrastructure development in Asia, in particular, a significant number of Korean companies are involved as engineering, procurement and construction contractors, equipment suppliers as well as asset developers. In many of these opportunities, Kexim’s strong support and deep involvement have been crucial in ensuring the successful funding and implementation of these projects.”
Significance: DBS which is predominantly active in the regions of China, South-east Asia and South Asia will be able to leverage on Kexim’s influence in Korea to support its Korean and Asian clients in developing opportunities in these markets, as it increasingly see more Korean companies investing in and exporting to markets in Asia.