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Stockwatch- Rotary Engineering (S'pore) OCBC 1 Dec 2006 Maintain BUY Mega Project running on schedule

Rotary Engineering Ltd
Mega project running on schedule

1 December 2006

Positive feedback on recent site visit. We brought institutional investors along for a site visit to Rotary's S$535m Universal Terminal project on Jurong Island yesterday. Investors' feedback is generally positive, especially on the demonstration of Rotary's capability to handle its first mega-sized engineering, procurement and construction (EPC) project. All the 73 custom built storage tanks are concurrently being constructed using automated machineries and a smaller than usual site workforce, and the project is on target for completion by end 2007.

Rush of investment activities on Jurong Island. We estimate that the Bukom Shell Houdini project carries an average annual investment value of about S$1.6b in the 2007-09 periods, while ExxonMobil's planned second petrochemical complex may contribute another S$1.0b per annum in the 2008- 10 periods if its ongoing feasibility study is favourable. Together with other announced investments like Iran's participation in an S$465m refinery project, the recent developments on Jurong Island has dwarfed the S$1.5b to S$2.0b total investment commitments per annum in Singapore's Chemicals Industry Cluster in the 2002-05 periods. Rotary's hit rate for contracts that it tendered for on Jurong Island has historically been 60-70%.

Getting ready to pounce on contracts in the Middle East. Rotary's current geographical focus for EPC projects is in Singapore, Middle East, and Thailand. Rotary's two new joint ventures in Saudi Arabia have already begun to bid for contracts, and will be supported by the expected commissioning of its fabrication facility in the Kingdom in 2007.

Our new contract wins assumption is not aggressive. Our earnings model assumes the absence of mega EPC contract win in the 2007-08 period, while the total value for staggered new bread-and-butter EPC deals (typically S$300m per annum. Maintain BUY.

posted by gsg @ 11:38 AM