Still waiting more contract wins
Record FY07 results. Rotary Engineering (Rotary) posted a 16% drop in 4Q07 revenue to S$98.9m as a result of the completion of several major projects in 4Q06. At the net level, earnings rose 54% YoY to S$12.4m. This led to full year net earnings of S$52.8m, up 50%. Its overall performance was underpinned by buoyant demand for oil and gas downstream activities
in FY07, where revenue rose 17% to a record S$510.2m in FY07. However, as a prudent measure, Rotary made a provision for impairment loss of S$10.4m for its investments in two loss-making associated companies in China and Indonesia. Excluding these one-time provisions, Rotary's preprofit would have been S$81.9m, which is marginally higher than our expectations.
Record FY07 results. Rotary Engineering (Rotary) posted a 16% drop in 4Q07 revenue to S$98.9m as a result of the completion of several major projects in 4Q06. At the net level, earnings rose 54% YoY to S$12.4m. This led to full year net earnings of S$52.8m, up 50%. Its overall performance was underpinned by buoyant demand for oil and gas downstream activities
in FY07, where revenue rose 17% to a record S$510.2m in FY07. However, as a prudent measure, Rotary made a provision for impairment loss of S$10.4m for its investments in two loss-making associated companies in China and Indonesia. Excluding these one-time provisions, Rotary's preprofit would have been S$81.9m, which is marginally higher than our expectations.
No surprises on the dividend payout. Rotary is proposing a one-tier final dividend of 2.3 cents per share, bringing a total dividend to 4.6 cents per share for the year. This translates to a dividend payout ratio of 49%. This is within the range of Rotary's dividend payout ratio of 38% to 50% historically. At yesterday's closing price of S$0.98, dividend yield works out to be 4.7%.
Review of contracts secured. We note that the sizeable contract order flow had not been as visible as earlier guided by the management. Based on our calculations, Rotary's contracts secured were S$203m in FY05, S$833m (including the S$535m Universal Terminal project) in FY06, and S$400m (our estimates) in FY07. Additionally, Rotary has clinched S$205m worth of contracts to date, bringing its order book to S$640m currently.
Lowering FY08 earnings forecast. Until we see further flow of orders in the coming months, we are paring back our revenue estimates for FY08 by 12.9% as order flow has been fairly slow for the last quarter of 2007. However, contract wins can be very lumpy for this industry and we do not discount the possibility of major contract wins in the coming months and this could trigger earnings and share price re-rating. We are increasing our PER multiple from 12x to 14x to take into account affirmation of Rotary's capability following completion of the Universal Terminal project. Pegged at 14x FY08 forecasted earnings, our fair value estimate is lowered to S$1.34 (from S$1.48 previously). As this represents an upside of 36.7%, we maintain our BUY rating.
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1 comment:
Another oustanding post.
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