Stockwatch- Rotary Engineering, Kim Eng 5 Jan 2007 report up target price to a conservative 86ct
Kim Eng report today on Rotary, says 86cts conservative:Rising Contract Flows
♦ Winning sizeable contracts in Thailand
Rotary Engineering (Rotary) recently secured Engineering, Procurement & Construction (EPC) contracts worth $126m from Map Ta Phut Olefins (MOC), a joint venture between Siam Cement Group and DOW Chemicals. The contracts involve the construction of its off-site process plant facility in Map Ta Phut, Rayong Province. The project involves the construction of the process plant unit consisting of 15 spherical and atmospheric tanks for the storage and handling of various petrochemical products, as part of the New Naphtha Cracker Complex to be built in Map Ta Phut. The contract is expected to be executed over a 24-month period from mid-2007 onwards.
♦ Upgraded earnings forecasts
This is clearly a positive development for Rotary and underscores the group’s growing influence in the Thai market. (In FY05, Thailand contributed 21% to total turnover) Orderbook now stands at $651m. We have upgraded our earnings for FY07 and FY08 by 10% and 9% respectively to reflect growing order flows in the course of the year.
♦ Expected increase in downstream spending bodes well
Shell is building a US$3b petrochemical cracker in Singapore, while ExxonMobil is also looking to increase capacity and plans to add a second comparable cracker unit. The investment is expected to be confirmed in FY07. A total of US$6-8b in capex could be pumped into the Singapore oil refinery sector over the next few years. International Energy Agency (IEA) estimates that new-build cracking refinery cost has risen from around US$3.0b to approximately US$4.0b for a 200 kb/d refinery. The IEA also reckons that refinery construction firms have full orderbooks for the next three years. Although a total of some 15.1 mb/d (equivalent of US$302b) of new capacity has been announced for completion before 2011, there is the risk of delays. Refinery capacity growth is centred on Asia (4.6 mb/d), the Middle East (2.6 mb/d), and North America (1.4 mb/d). Rotary is poised to benefit from these flows.
♦ An affordably priced O&G play; maintain BUY
Rotary remains a relatively under-researched stock and one of the better proxies to the region as well as Singapore’s increasing refinery/oil terminal capex cycle. We believe Rotary deserves a minimum ex-cash multiple of 10.9x 2007 PE (low end of peers’), which translates to a target price of $0.86.
posted by gsg @ 4:44 PM
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