The firm has done early engineering and design work on a few projects worth $150-350 million each in the United Arab Emirates and Southeast Asia, said Chia Kim Piow, Rotary’s chairman and managing director.
He did not give details but said Rotary had the capacity to take up to a 30-40 percent stake in such projects in Indonesia, Malaysia and Vietnam.
“This will be the next trend of expansion for us,” Chia said. “This is just a natural progression for our kind of business.”
“We are EPC (engineering, procurement, construction) contractors, but ultimately we might take some stakes in some build-own-operate or build-own-transfer projects.”
Any outlay on these projects would likely be 70 percent funded through project financing and the rest using internal resources.
“The move towards BOO or BOT is a positive development because it will give them recurring income, but how much it is going to contribute to their bottom line is not clear yet,” said Yeo Zhi Bin, an analyst at CIMB Research.
Rotary was trading at S$0.935 around 0310 GMT, down 11 percent so far this year, but Yeo has an “outperform” rating and target price of S$1.17.
The Singapore-based firm reported a 6 percent increase in its second quarter net profit to S$13.7 million ($10.15 million) from a year ago mainly on the back of a large project in Saudi Arabia.
It won a $745 million EPC contract last year to build a refinery tank farm in Jubail, awarded by a joint venture between Saudi Arabian Oil Co (Saudi Aramco) and Total SA.
Rotary said the project was on track for completion by the end of 2012 and it was eyeing smaller-scale projects in the region, with a range of $20-50 million each in Saudi Arabia and $150-350 million each in the United Arab Emirates.
“We have already set up our base in Saudi, so that will be the springboard for us to cross over to the neighbouring countries. We have the experience and the manpower, so we want to expand to other business,” Chia said.
However, Chia said India and China will be difficult markets to break into because of the strong competition among the small to medium sized firms there.
“We have engineering offices in India and China, but it will be hard for us to compete in those bloody battlefields. The construction business there is very vicious,” he said. Nevertheless, Rotary has a global workforce of 7,000, of which 2,000 are from China, and who can be utilised to penetrate the China market in 5 years, he added.
The firm’s order book to date stands at S$926 million, of which over 80 percent originated from outside Singapore. Chia said that 80 percent of its future revenue contribution will most likely come from overseas, and the remaining from Singapore.
OCBC Securities has lowered its target price for Rotary to S$1.16 from S$1.53 due to expectations the firm’s gross profit margin will fall in the second half of the year as it delivers big projects that typically result in lower margins.
But OCBC maintained its “buy” rating, citing Rotary’s earnings visibility that stretch comfortably into its 2012 financial year.
