Rotary

Rotary: 1Q12 results below CIMB expectations. Revenue was flat at $133.4m, while net profit fell 41% yoy to $3.2m. Gross margins retreated to 14.5% (4Q11: 20.2%, 1Q11: 17.7%), due to higher costs incurred in the construction phase of the SATORP project. Admin costs were 38% higher yoy, due to forex losses from an unexpected increase in net USD assets, coupled with USD weakness against SGD. Orderbook declined to $597m from $646m at end 2011. CIMB cuts FY12-14 EPS by 13-33% to factor in slimmer margins, factors in ~$400m worth of orders annually. Keeps at Underperform, with TP lowered to $0.61 from $0.64, pegged to 1.2x CY12 P/B, 1 std dev below mean. Notes Rotary is prospecting for a Jizan tank farm package (est US$1b) and Greenfield projects in which it can take up small equity stakes (ie. tank farm at Tanjung Pai with Msia’s Benalac Hldgs), hence key risk to rating would be Rotary clinching a momentous contract win.