Rotary Engineering struggles to keep up with pricing competition

The result - falling gross margins and net order book, coupled with a 22% plunge in the company's share price.

Further plummetting down appear to be in store with delays on the Fujairah project. The Tanjung Piai oil terminal, another project, is still at a preliminary stage.

Here's more from OCBC Investment Research:

Rotary Engineering Limited’s share price plunged by 22% in the last month against STI’s 7% and FSTOG’s 9% declines. This was probably due to its disappointing 1Q12 results, continued uncertainty in the global economy and investors’ preference for defensive non-cyclical counters. As of 4th June 2012, Rotary’s share price has again fallen to a three-year historical low of S$0.50, representing almost 1x P/B.

Headwinds from all directions. Rotary’s business model is highly dependent on the profitability and volume of the project work it secures. Recently, it faced severe headwinds from several fronts: fewer contracts awarded by oil companies, rising political risks in the Middle East, and a severe pricing competition. This has resulted in falling gross margins and net order-book.

More downside risks. More downside risks seem to be in store for the group, arising from additional costs on the SATORP project due to stricter-than-expected requirements, and further delays on the Fujairah project due to engineering design variations. The Tanjung Piai oil terminal project is still at a preliminary stage and is unlikely to be cash generative over the near and medium term horizon.