Rotary Engineering Ltd (Rotary) reported a 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. FY11 revenue of S$531m (down 25%) and net profit of S$31m (down 51%) were within our expectations but below the street’s expectations. Rotary’s current order-book has also decreased to S$690m from S$758m as end-Sep 11. Meanwhile, the group has proposed a 2 S cts final dividend. We maintain HOLD rating but increased our fair value estimate to S$0.72 on 1.3x PBR.
Results within expectations
Rotary Engineering Ltd (Rotary) reported 19% and 69% YoY decreases in its revenue and net profit to S$130m and S$8m respectively for 4Q11, mainly due to fewer projects executed in the quarter. 4Q11 gross profit margin declined to 20% from 30% (4Q10) due to the absence of major project closures. On a full year basis, FY11 revenue of S$531m (down 25%) and net profit of S$31m (down 51%) were within our expectations but below the street’s expectations. FY11 gross margins remained flat at 21% (FY10: 22%), but net margins fell to 5.8% (FY10: 9.1%) on the back of lower revenue. Rotary has also announced a 2 S cts final dividend, bringing its FY11 total dividend to 3 S cts (or a payout ratio of 55%).
A leaner order-book
Rotary’s order-book has declined to S$690m (as of 14 Feb 2011) from S$758m (as of end-Sep 11). The downward trend in its order-book, as seen over the past 12 months, mainly reflects the financial and economic uncertainties in the global environment. However, management is seeing some momentum in project enquires. It continues to participate actively in tenders and hope to capitalize on its presence in Jubail to win further contracts.
Margin pressure persists
In view of the uncertainties in the operating environment, management has guided for lower gross profit margin of 12-18%, in contrast to the typical 15-20%. There may be some upside from the release of risk contingencies on project completions. In this regard, we believe that the SATORP mega-project (due for completion in end-Dec 12) may provide 2-3% upside. In line with the recent re-rating of the oil-and-gas sector, we are increasing our fair value estimate to S$0.72 (S$0.61 previously) based on 1.3x PBR (1.1x previously). Maintain HOLD.
A leaner order-book
Rotary’s order-book has declined to S$690m (as of 14 Feb 2011) from S$758m (as of end-Sep 11). The downward trend in its order-book, as seen over the past 12 months, mainly reflects the financial and economic uncertainties in the global environment. However, management is seeing some momentum in project enquires. It continues to participate actively in tenders and hope to capitalize on its presence in Jubail to win further contracts.
Margin pressure persists
In view of the uncertainties in the operating environment, management has guided for lower gross profit margin of 12-18%, in contrast to the typical 15-20%. There may be some upside from the release of risk contingencies on project completions. In this regard, we believe that the SATORP mega-project (due for completion in end-Dec 12) may provide 2-3% upside. In line with the recent re-rating of the oil-and-gas sector, we are increasing our fair value estimate to S$0.72 (S$0.61 previously) based on 1.3x PBR (1.1x previously). Maintain HOLD.
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