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Rotary Continues Turnaround With $7.9m Profit In 3Q13
Corporate Digest | 14 November 2013
By: Shane Goh
Articles (99) Profile

Since its previous fiscal year, Rotary Engineering has posted three consecutive profitable quarters. For the nine months ended 30 September 2013, Rotary Engineering recorded $413.5 million in revenue, up 14.8 percent compared to last year. With a gross profit margin of 12.1 percent and a clamp down in other operating costs, Rotary returned to the black with a bottom line of $15.6 million.

Source: Rotary Engineering Financial Statements

In an earnings briefing on 13 November 2013, Rotary’s chairman, Roger Chia, shared with Shares Investment the key factors behind the firm’s turnaround performance. Chia attributed the success enjoyed to a 3M model the company has adopted: Manpower, Material and Machine.

3M Model
With the impending rise in wages, Rotary seeks to raise productivity of each employed individual. Chia shared that the firm recruits, trains and develops workforce for global deployment in their overseas test and training centres. Notably, its Batam fabrication facility provides an end-to-end solution for pre-fabrication works to enhance the facility’s utilisation.

Following a cost overrun in FY12, Rotary’s management has learned a valuable lesson in project planning. 9M13 results saw the firm boasting a 12.1 percent gross profit margin, compared to a loss a year ago. Chia related the importance of strategising, prior to undertaking projects as the crux for the change. Particularly for materials, efficient warehousing and prompt logistical support to its projects have helped reduce the cost incurred by Rotary.

Lastly, investments in specialised machinery and supply chain logistics has offered Rotary the flexibility to better meet their clients’ expectations as well as increase the control they have over the whole process.

Outlook
As of 30 September 2013, Rotary’s order book stood at $847 million, up from $492 million last year. Interestingly, the geographical breakdown of its orders has changed significantly over the same period. The Middle East used to command 72 percent of Rotary’s orders but has fallen to 33 percent while Singapore has risen from 23 percent to 62 percent.

Despite the shift, Rotary carries a view of a strong growth potential in the port of Duqm, Oman in the Middle East and has set up a representative office to explore opportunities. Atop, Rotary has the intention of growing its ASEAN order book, particularly in Malaysia and Indonesia where the firm has submitted bids for several projects. Recently, Rotary has also set up a Myanmar subsidiary to identify opportunities in the emerging country.

When asked about the Rotary’s ambition for future LNG (liquefied natural gas) projects, Chia commented that the firm is very serious on the prospects and scouted for acquisition targets but was unable to find any. As a result, they have sent employees to Hainan Island, to understudy the required construction methods.

With a strong order book and sound financial position, Rotary is primed to record a full year turnaround.

Currently pursuing his Chartered Financial Analyst qualification, Shane provides coverage on the property, consumer and environmental sectors at Shares Investment.

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