More brokers are taking notice of this ECP service provider, which has won major contracts at home and hopes to bag some in Mid-East, writes TEH HOOILING

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Good prospects: In January, Rotary bagged its biggest contract to date - a $535 million deal from local oil trader Hin Leong Trading and its partner Chinese giant PetroChina to build an oil terminal on Jurong Island (above)

But many of today's superstars started their careers in bit roles. All it takes is one breakthrough role, and when he or she gets noticed, their ascent can be phenomenal. So, too, when the smaller stocks get noticed.

The offshore and marine theme has been in play for the past few years. But it was Keppel Corp and SembCorp Marine which attracted the most attention and funds. Until recently, stocks like Pan-United Marine, ASL Marine and Labroy Marine were in the shadows. That is until the market wakes up one morning and decides it's time to back the second-liners which don't come with a hefty price tag as yet.

As recently as three months ago, Pan-United Marine was trading at 70 cents a share. It is now $1.20, even after distributing dividends of some 11 cents last month.

In August, ASL Marine was changing hands at 63 cents. It has surged some 40 per cent in the past six weeks.

One company which has recently won a 'career-defining' role is Rotary Engineering.

Rotary's core business is the provision of engineering design, procurement and construction (ECP) of oil storage tank terminals and related facilities to oil majors and oil traders. It also provides third-party maintenance services of the processing and storage facilities to the oil and gas and petrochemical industries.

In January this year, it bagged its biggest contract to date - a $535 million deal from local oil trader Hin Leong Trading and its partner Chinese giant PetroChina to build an oil terminal with a storage capacity of 2.3 million cubic metres (cbm).

To be built on Jurong Island, Universal Terminal (UT) will have 73 custom-built tanks and 12 berths of its own, including two VLCC (very large crude carrier) berths.

The project is scheduled to be completed by end 2007. According to Rotary's chief financial officer Alex Goh, 18 per cent of the work was completed in the first half of the group's financial year ended June 31, 2006. During that period, Rotary's revenue surged 150 per cent to $202 million and its net profit jumped to $16 million from just $3.2 million a year ago.

Taking on the world

Rotary, said Mr Goh, will book the higher margin parts of the contract in the second half of this year and the first half of 2007.

The significance of the UT project does not end next year. 'It is also an opportunity for us to showcase to the world our capability to take on a project of this scale,' Mr Goh said.

For example, having checked out Rotary's work on UT, the national oil company of Saudi Arabia - Saudi Aramco - has pre-qualified Rotary as one of its preferred ECP service providers. Mr Goh is hopeful of bagging some contracts - albeit small ones as a start - from the world's largest oil company with the world's largest proven oil reserves in the next few months.

'The Middle East is the next frontier for us; we are going out to be a player there,' said Mr Goh who had spent more than a decade of his working life in oil giant Mobil. It is anticipated that the Gulf region will invest US$200 billion on oil and gas infrastructure in the next 10 to 15 years, he added. 'The oft-repeated saying there is 'There are a lot of jobs chasing too few service providers'.'

Rotary, through a 50-50 joint venture, has received approval from the Saudi authorities to establish its fabrication yard in the Gulf at Jubail Industrial Park. The facility, expected to be ready in a year's time, will be the group's fifth. It already has two in Singapore (one in Tuas and the other on Jurong Island), one in Rayong, Thailand, and the last in Batam, Indonesia. It is also looking into setting up a sixth site in Shanghai, in anticipation of its customers' increased investments there to feed the growing energy demand in China as it industrialises.

But even in Singapore, there will be enough work to keep Rotary busy. Singapore is now the world's third-largest oil trading hub. Its current total storage capacity of 3.5 million cbm has been running at 90 per cent for the past five years. Some 6.45 million cbm of new capacity will be built in the next few years.

Another source of new projects is from the chemical industry which is pumping an average of $1.5 billion of investments a year into Singapore over the past four years.

Another incremental and recurrent source of income is the provision of maintenance service. There are 70 process plants on Jurong Island, and the estimated annual maintenance budget average is $5.5 million each.

As at June 30, 2006, Rotary's outstanding order book amounted to $525 million. Its latest deal was a $24 million contract to build a biodiesel process plant and its related facilities for a subsidiary of Peter Cremer (Singapore) GmBH on Jurong Island.

Crossing the threshold

In addition to its traditional activities, Rotary is also looking into diversifying into related areas, for example, co-owning some of the process plants it builds in the future, so as to grow a bigger stream of recurring income for the group.

'Rotary has always been very prudent, but we are now crossing the threshold to the next level,' said Mr Goh. He thinks that the group's track record and reputation among its existing customers will put it in good stead vis-a-vis competitors and other newcomers vying for the same pie.

At half time, Rotary has already chalked up earnings per share (EPS) of four cents. OCBC Investment Research - the only research outfit to cover the stock - has a forecast EPS of 9.3 cents for the full year. Based on its last traded stock price of 55.5 cents, Rotary is trading at an earnings multiple of just six times.

However, analyst Chong Wee Lee is cautious about the outlook for 2007. He's predicting the EPS to decline to 7.8 cents. Even then, the price-earnings ratio, at seven times, is not excessive. And if Rotary is successful in executing its plans, growing the bottom line is not out of the question.

In Mr Goh's own words: 'We are confident that Rotary is in for some good times. Once everything is in place, the company is a good investment (at current levels). Investors should look at it.' And it is understood that more brokers are taking notice. One foreign broker - CLSA - has met the management on a few occasions.

Rotary spreads risks by putting bets in many markets, writes CHUANG PECK MING

"We got to be more flexible and accept what's happening in front of us, accept reality and be more pragmatic.' - Mr Chia

Today, the engineering, procurement and construction company that serves the rich oil and gas industry is worth some $225 million in the stock market. Annual sales, projected to hit $400 million this year, are 40 times they were in 1984.

Back in 1984, in fact, Rotary was on the brink of going bust, hit by a double whammy of poor business and high overheads, according to Chia Kim Piow, the only one of the five founders still active in the company today.

'It was the toughest time we ever had. We almost went bankrupt,' recalls Mr Chia, who is chairman and managing director of Rotary. 'The industry was in recession even before the recession hit the whole economy. It always comes early for us,' he says.

Rotary had by then grown into an amalgamation of disparate businesses going separate ways. While the businesses shared a common roof, they were not pulling in enough revenue to support the overlapping overheads which had become a heavy burden. 'So it's either we broke up or we were going to sink,' Mr Chia says. 'We broke off nicely and that's how we survived.'

And he stinged and overhauled Rotary, took advantage of the lull in the industry to hire more engineers let off by a Japanese rival - and sharpen his company's focus on engineering. 'If you feel you can't survive, you should reorganise,' says Mr Chia of the lessons he learnt from his close encounter with bankruptcy.

There's also the matter of face, or ego, which refuses to accept the inevitable and lead to inaction, he says. 'We can always have this face value which can sometimes kill. We got to be more flexible and accept what's happening in front of us, accept reality and be more pragmatic. It you want face, you can't survive.'

Eating humble pie when he has to ward off creditors during that critical year when Rotary almost went over the edge was a horrible experience which has taught Mr Chia to be more prudent in later years. So he has shunned unfamiliar terrain in business and stopped being greedy.

'We should be pragmatic and specialise in what we are good at, because in life there are so many temptations, especially when you are doing well,' Mr Chia says. 'People will come to you and ask you to do this, do that, to go into something new. We must be prudent and careful.'

Staying focused and watching his steps closely, Mr Chia has since kept Rotary growing in good shape. The company went public in 1993 and is spreading its wings in the global markets, having established a presence in Malaysia, Thailand, Indonesia, Australia, China and, most recently, the Middle East.

It's often a multinational company client here that got Rotary launched in an overseas market. Impressed with the job Rotary has done, the MNC client would offer the company more projects elsewhere where the former also operates. 'That's how we got started in Thailand,' Mr Chia recalls. 'We've never been there. Our client gave us a $40 million contract and we started from scratch. Likewise in China where we went in 1993.'

Going global is not just his answer to the limitations of the home market. Mr Chia says by putting its bets in many markets, Rotary could spread its risks so that when, say, the Singapore market dries up, as it was last year, there's still enough projects in other markets to keep the company afloat. For now, Rotary never has it so good. It clinched its biggest ever deal at the start of this year - a $535 million contract to work on the $750 million Universal Terminal on Jurong Island. 'This is a milestone for Rotary,' Mr Chia says. 'The number of storage tanks at a single terminal at one time make the project the largest that Rotary has undertaken, in terms of numbers and project value.'

Evan Lim, executive director of Hin Leong Trading, the company that awarded the contract, says it's because of Rotary's international experience that won the deal.

The size of the project has put the spotlight on Rotary, which already has potential clients from the Middle East knocking at its door. 'It (the project) is my springboard to bigger terminal jobs,' Mr Chia says.

Rotary is certainly on a roll. The company, which boasts an outstanding order book of $525 million as at end-June, reported a 150 per cent jump to $202.1 million in sales in the first six months of the year, while net profits rose almost five times to $16 million. 'There are lots of opportunities because of the process industry's growth,' Mr Chia says. 'Oil prices have gone up and there are many projects around the world, especially in the Middle East. There's high demand in China and India.'