Rotary

Rotary: reported a hefty 3Q12 net loss of $66m, mainly due to “additional costs, including provisions for foreseeable losses of $40m” for the SATORP project. This effectively wipes out Rotary’s previous 7 qtrs of profits. Although the group had earlier warned of net losses for 3Q12 and FY12, the quantum of loss was far worse than OCBC’s expectations of $8m net loss. Recall, the SATORP project encountered several difficulties incl design flaws, escalating subcontracting costs, work sequencing issues and harsh working conditions, resulting in the cost overrun situation. Mgt assured that it is working hard to rectify these issues and “things are now under control”. Says it has re-assessed the project budget and made the necessary provisions, and believes the SATOP project is on schedule for completion by end ’12. During the qtr, Rotary also recorded $12m of impairments relating to its LNG logistic associate as the business had turned unviable. OCBC maintains Sell with lower TP of $0.34, believes it may still be too early to turn positive. The stock is -3.6% at $0.405.