Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED
Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD
Market Pulse: Rotary Engineering and United Envirotech (03 Oct 2011)
FOCUS
Rotary Engineering: Upgrade to BUY - Attractive entry point
Summary: Rotary Engineering announced that it has secured S$110m worth of contracts between Jul and Sep 2011, including a multi-million dollar contract from Taiwan-based Chang Chun Group to undertake the construction of a petrochemical plant on Jurong Island. Compared with its average quarterly revenue of S$155m (over the past eight quarters), we feel that Rotary would need to win more contracts to replenish its order-book. However, we believe that the decline in its share price year-to-date has been excessive. It is currently trading at 6x PER and 1x P/B, also about one standard deviation below its averages over the past 5 years. With an estimated dividend yield is about 6%, we believe current valuation is attractive for long-term investors. Upgrade to BUY with an unchanged fair value estimate of S$0.66. The key risks include worsening geopolitical risk across the Middle East region, a sharp cut in capex by oil companies and project execution risks. (Chia Jiunyang)
United Envirotech: Growing its recurring income stream
Summary: United Envirotech Limited (UEL) has acquired another waste-water treatment project in China; this after exercising a call option to acquire the entire equity interest of Tongji Environmental (China) Pte Ltd (Tongji) for RMB34.03m. Tongji is the holding company of Aton Environmental (Shenyang) Co, where the latter has a 30-year BOT (Build-Operate-Transfer) concession agreement with the municipal government to treat 50k m3 of wastewater daily. According to UEL, the move is part of its business strategy to increase recurring income streams through the investment in water treatment projects. Management continues to remain upbeat about the growth prospects in China's wastewater industry and intends to invest in similar projects in economically developed provinces; and the proceeds from the issue of US$113.8m worth of convertible bonds to KKR due in early Oct would come in handy. But until we see a more sizable EPC project, we maintain our FY12 and FY13 estimates for now. Hence our DCF-based fair value remains at S$0.53. Maintain BUY. (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- European governments are exploring speeding up the start of a permanent rescue fund. Finance officials will weigh the cost advantages of setting up the European Stability Mechanism a year earlier than its planned Jul 2013 start.
- According to MAS data, total Singapore-dollar bank loans increased 3% in Aug from Jul, to reach S$393.2b. This was mainly driven by increase of business loans - which make up more than half of Sing-dollar bank loans.
- According to US treasury data, Singapore-based investors re-entered the US market in the Q2 of 2011, piling up their portfolios with both US equities and Treasury bonds.
- GIC and the bankrupt owners of Doral Resorts and four other luxurious resorts, reached settlement to recover US$360m in loans. This settlement was obtained after GIC previously tried to acquire the five resorts for US$1.465b in cash and debt.
- Lippo Malls Indonesia Retail Trust is buying two retail malls in Indonesia for approx. S$388m, to be fund partly by a rights issue.
- First deliveries of additional Indonesian piped gas supplies (86m standard cubic feed daily) will begin this month. The supplies will be brought in by Sembcorp Gas under a deal struck three years ago.
Company Name: ROTARY ENGINEERING LIMITED
| Research House: OCBC | Price Call: BUY | Target Price: 0.66 |
Stock Name: UtdEnvirotech
Company Name: UNITED ENVIROTECH LTD
| Research House: OCBC | Price Call: BUY | Target Price: 0.53 |
Market Pulse: Rotary Engineering and United Envirotech (03 Oct 2011)
FOCUS
Rotary Engineering: Upgrade to BUY - Attractive entry point
Summary: Rotary Engineering announced that it has secured S$110m worth of contracts between Jul and Sep 2011, including a multi-million dollar contract from Taiwan-based Chang Chun Group to undertake the construction of a petrochemical plant on Jurong Island. Compared with its average quarterly revenue of S$155m (over the past eight quarters), we feel that Rotary would need to win more contracts to replenish its order-book. However, we believe that the decline in its share price year-to-date has been excessive. It is currently trading at 6x PER and 1x P/B, also about one standard deviation below its averages over the past 5 years. With an estimated dividend yield is about 6%, we believe current valuation is attractive for long-term investors. Upgrade to BUY with an unchanged fair value estimate of S$0.66. The key risks include worsening geopolitical risk across the Middle East region, a sharp cut in capex by oil companies and project execution risks. (Chia Jiunyang)
United Envirotech: Growing its recurring income stream
Summary: United Envirotech Limited (UEL) has acquired another waste-water treatment project in China; this after exercising a call option to acquire the entire equity interest of Tongji Environmental (China) Pte Ltd (Tongji) for RMB34.03m. Tongji is the holding company of Aton Environmental (Shenyang) Co, where the latter has a 30-year BOT (Build-Operate-Transfer) concession agreement with the municipal government to treat 50k m3 of wastewater daily. According to UEL, the move is part of its business strategy to increase recurring income streams through the investment in water treatment projects. Management continues to remain upbeat about the growth prospects in China's wastewater industry and intends to invest in similar projects in economically developed provinces; and the proceeds from the issue of US$113.8m worth of convertible bonds to KKR due in early Oct would come in handy. But until we see a more sizable EPC project, we maintain our FY12 and FY13 estimates for now. Hence our DCF-based fair value remains at S$0.53. Maintain BUY. (Carey Wong)
For more information on the above, visit www.ocbcresearch.comfor the detailed report.
NEWS HEADLINES
- European governments are exploring speeding up the start of a permanent rescue fund. Finance officials will weigh the cost advantages of setting up the European Stability Mechanism a year earlier than its planned Jul 2013 start.
- According to MAS data, total Singapore-dollar bank loans increased 3% in Aug from Jul, to reach S$393.2b. This was mainly driven by increase of business loans - which make up more than half of Sing-dollar bank loans.
- According to US treasury data, Singapore-based investors re-entered the US market in the Q2 of 2011, piling up their portfolios with both US equities and Treasury bonds.
- GIC and the bankrupt owners of Doral Resorts and four other luxurious resorts, reached settlement to recover US$360m in loans. This settlement was obtained after GIC previously tried to acquire the five resorts for US$1.465b in cash and debt.
- Lippo Malls Indonesia Retail Trust is buying two retail malls in Indonesia for approx. S$388m, to be fund partly by a rights issue.
- First deliveries of additional Indonesian piped gas supplies (86m standard cubic feed daily) will begin this month. The supplies will be brought in by Sembcorp Gas under a deal struck three years ago.
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