MARKET PULSE: Ezra, Triyards, Rotary (25 Sep 2012)

Stock Name: Rotary
Company Name: ROTARY ENGINEERING LIMITED

Research House: OCBC

Price Call: SELL

Target Price: 0.43

MARKET PULSE: Ezra, Triyards, Rotary

25 Sep 2012

KEY IDEA Ezra Holdings: Progress on all fronts As tendering activity in the subsea market continues to be buoyant and the industry outlook is set to remain positive, we increase our FY13 subsea new order wins estimate for Ezra Holdings to US$900m, increasing our fair value estimate from S$1.35 to S$1.48. At the same time, we are positive on the impending listing of Ezra's engineering and fabrication arm, Triyards, as this will allow the latter to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. The move may also allow Ezra and Triyards to leverage on each other for business opportunities. Finally, an equity carve-out increases information transparency, improving investors' understanding of the parent's firm value. Assuming Triyards trades at 9x FY13F earnings with a share price of S$0.78, we estimate that this would lower our fair value estimate for Ezra from S$1.48 to S$1.40. Shareholders' approval still has to be sought at an EGM this week. Maintain BUY. (Low Pei Han) MORE REPORTS Triyards Holdings Ltd: Specialist yard branching out With two yards in Vietnam and a fabrication facility in the US, Triyards Holdings Ltd (Triyards) is an engineering and fabrication solutions provider focused on the offshore oil and gas industry. Unlike many shipyards, the group has a strategic focus on the construction of self-elevating units (liftboats), having established a significant track record. Originating from Ezra Holdings which will hold a 67% stake post listing, Triyards may be able to be involved in some of the projects that Ezra undertakes and tap into Ezra's clientele base. Based on 9x FY13F earnings, we derive a fair value estimate of S$0.78. We do not have a rating on Triyards. (Low Pei Han) Rotary Engineering Ltd: Profit warning Rotary Engineering Ltd (Rotary) issued a profit warning of net losses for the coming quarter and FY12F. According to management, losses were mainly due to the SATORP project. This should not come as a total surprise as Rotary had previously reported that it faced "major challenges" in its execution and warned that "additional costs … will be incurred to rectify" certain issues. The group's ability to manage the cost over-run issue may be limited given the shortage of subcontractors in Saudi Arabia market and the tight deadline for completion. We now project a net loss of S$2.5m in FY12F and a subsequent recovery in FY13F. We also lowered our P/B peg to 0.8x (previously 1.0x) and fair value estimate to S$0.43 (previously S$0.50). Downgrade to SELL. (Chia Jiunyang)

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NEWS HEADLINES - The Dow and the S&P 500 Index both slipped 0.2%. Stocks fell globally after German Chancellor Merkel and French President Hollande reportedly failed to agree on a time frame to start joint oversight of Europe's banking system. - Apple dropped 1.3% as opening-weekend iPhone 5 sales missed some analysts' targets. - The Securities & Industry Council has rejected Fraser & Neave's bid to make the Thai consortium raise its general offer to adjust for a proposed capital reduction. - Chasen Holdings has signed a deal for a transfer-operate-transfer project involving a purified water treatment plant and a waste water treatment plant in Jilin City, China. This marks the group's first such project in China. - SunRight's FY12 net profit fell 87% to S$615k. Revenue slid 9% to S$105.55m. - Courage Marine Group is selling a vessel for US$3.86m. It expects net proceeds of US$3.76m from the disposal.