Summary: Rotary has seen its price retreating 12% to the current S$0.875 following the general market sell down since 28 February. We believe that this has presented investors with an opportunity to buy into Rotary?s prospects, which are likely to benefit from the expectation of strong news flow in 2007. Our fair value for Rotary is S$1.08, which implies a reasonable 15x FY07 PER. We reiterate our BUY rating on Rotary. Rotary is an established engineering, procurement, and construction (EPC) player for small-mid sized contracts of US$2b Singapore Parallel Train project on Jurong Island at around mid-2007 and the subsequent award of contracts from this mega project, and 3) possible participation in Phase 2 development of Jurong Rock Cavern through its new joint venture with OKP Holdings.

Price has become more attractive after recent sell down. Rotary?s share price has retreated 12% to the current S$0.875 following the general market sell down since 28 February. This has presented investors with an opportunity to buy into Rotary's prospects, which are likely to benefit from the expectation of strong news flow in 2007. Our fair value for Rotary is S$1.08, which implies a reasonable 15x FY07 PER. Maintain BUY.

Expect more news flow from the Houdini Project. Rotary is an established engineering, procurement, and construction player for small-mid sized contracts of less than S$100m each, and has a historical 60-70% hit rate for contracts that it has tendered for on Jurong Island. Due to the tight construction time-line with expected completion by 2009/10, Rotary should be able to add on to the combined S$49m worth of piecemeal contracts that it has already carved out from the US$3b Bukom Shell Houdini project by mid-2007. Indeed, our recent conversation with management suggests that Rotary is still active in the tendering for these contracts.

Jurong Island may see the commitment of another mega project in mid-2007. Rotary's prospects on Jurong Island may receive further boost from ExxonMobil, which may decide on its Singapore Parallel Train (SPT) project on Jurong Island at around mid-2007. To meet competition from similar facilities in the Middle East and China that are targeted for completion at around 2010, the fate of this >US$2b petrochemical complex will affect ExxonMobil's future participation rate for fast rising demand in Asia Pacific. A nod from ExxonMobil for SPT will be a big boost to Rotary.

Participation in Phase 2 development of Jurong Rock Cavern? The Jurong Town Corporation is looking at the possibility of boosting the ongoing construction of the Phase 1 development for 1.47 million cubic meters of underground storage space for liquid hydrocarbons by a further 88%. Rotary's 45/55 joint venture with locally-listed OKP Holdings Ltd has the capability to bid for this Phase 2 project, in view of the huge civil engineering works involved in the construction of underground storage facilities. We believe that its chances of success for such a bid are reasonable, given OKP's track record in civil engineering works, and the diversion of competition to concurrent mega construction projects like integrated resorts and Business Financial Centre in Singapore over the next few years.