Arabian knight
Saudi Arabian JV clinches US$62m contract
Rotary Engineering has increased its investment in its JV in Saudi Arabia, Petrol Steel, from SAR 2.5m to SAR 10m with a 51% stake. At the same time, Petrol Steel has clinched a US$62m contract from Saudi Kayan Petrochemical to build 24 tanks in Al-Jubail, Saudi Arabia. Completion is scheduled for end-2008.
Comments
Flexing its muscles in the Middle East. With a building cost of about US$8bn, Kayan Petrochemical is considered one of the largest standalone petrochemical complexes being built in the Middle East. We believe the contract attests to Rotary’s expanding track record in the Middle East.
More orders could be in the pipeline from the Middle East, on the back of heightened expansion in the refinery and petrochemical industries. We believe that Rotary is eyeing a few mega-sized projects (above US$500m). Contract wins are likely after the completion of its fabrication plant in the Jubail Industrial City by 2Q08. This had been delayed from 3Q07 due to a machinery shortage.
Still hopeful on Exxon Mobil contract. Rotary is still in the running for jobs (S$200m submitted) for the building of Exxon Mobil’s Singapore steam cracker in its US$4bn expansion plan.
Earnings estimates unchanged. We estimate current net order book at about S$350m and have assumed new contracts worth S$485m for 2008 (S$300m in 2007). Upside potential could come from any mega-deals in the Middle East.
Valuation and recommendation
Maintain Outperform but trimmed target price from S$1.80 to S$1.44, as we lower our target multiple from 15x to 12x CY09 P/E, in line with Rotary’s peers. More order wins and the successful execution of projects could provide catalysts for the stock. The company is scheduled to release FY07 results on 26 Feb and we expect full-year results to be in line, led by the final recognition of the Universal Terminal project.
Saudi Arabian JV clinches US$62m contract
Rotary Engineering has increased its investment in its JV in Saudi Arabia, Petrol Steel, from SAR 2.5m to SAR 10m with a 51% stake. At the same time, Petrol Steel has clinched a US$62m contract from Saudi Kayan Petrochemical to build 24 tanks in Al-Jubail, Saudi Arabia. Completion is scheduled for end-2008.
Comments
Flexing its muscles in the Middle East. With a building cost of about US$8bn, Kayan Petrochemical is considered one of the largest standalone petrochemical complexes being built in the Middle East. We believe the contract attests to Rotary’s expanding track record in the Middle East.
More orders could be in the pipeline from the Middle East, on the back of heightened expansion in the refinery and petrochemical industries. We believe that Rotary is eyeing a few mega-sized projects (above US$500m). Contract wins are likely after the completion of its fabrication plant in the Jubail Industrial City by 2Q08. This had been delayed from 3Q07 due to a machinery shortage.
Still hopeful on Exxon Mobil contract. Rotary is still in the running for jobs (S$200m submitted) for the building of Exxon Mobil’s Singapore steam cracker in its US$4bn expansion plan.
Earnings estimates unchanged. We estimate current net order book at about S$350m and have assumed new contracts worth S$485m for 2008 (S$300m in 2007). Upside potential could come from any mega-deals in the Middle East.
Valuation and recommendation
Maintain Outperform but trimmed target price from S$1.80 to S$1.44, as we lower our target multiple from 15x to 12x CY09 P/E, in line with Rotary’s peers. More order wins and the successful execution of projects could provide catalysts for the stock. The company is scheduled to release FY07 results on 26 Feb and we expect full-year results to be in line, led by the final recognition of the Universal Terminal project.
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