Rotary to suffer Q3 profit losses

Blame it on execution issues for the US$745m Satorp project.

According to CIMB, Rotary faces insurmountable odds amid decreased opportunities on land-scarce Jurong Island as well as ongoing execution issues for its landmark Satorp project.

Here's more from CIMB:

Due to execution issues for the US$745m Satorp project in Saudi Arabia, Rotary is expected to record a net loss for 3Q12 and FY12. The group is experiencing problems at the tail end of the construction phase.

More subcontractors had to be appointed to ensure that the project will be completed on schedule by year-end. Further, there were late engineering design changes which resulted in major civil works.

YTD, Rotary has secured S$35m or 12% of our FY12 order target of S$300m. With no significant wins, there is downside risk to our FY13-14 EPS.

Given the drag in negotiations, we are unsure whether Rotary’s proposed partnership with Benalec (BHB MK) will materialise. To recap, Rotary has signed a memorandum of understanding with marine construction specialist, Benalec, to develop an independent oil storage terminal (total capacity of 3m cubic metres) in Tanjung Pai, Johor.

Additionally, the recent purchase of Helios Terminal on Jurong Island, Singapore by Germany-based Oiltanking puts a damper on greenfield projects (Oiltanking was considering new capacity in Indonesia).

The wild card could come from the the Middle East where Rotary is tendering for the Jizan tank farm package and Phase 2 of the Sadara petrochemical complex. Results for both tenders should be known by year-end.

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