R H Energy Ltd

Wins contracts worth US$21.2m. R H Energy Ltd (RHE) announced that it has won 2 contracts from Sinopec totalling US$21.2m. The first is a US$7.7m contract to provide directional flow control valve system at the Puguang Gas Field. This project will be delivered in 2Q08. The second is a US$13.5m contract, as mentioned in our previous reports, to provide an emergency shut down system for a pipeline transporting natural gas downstream from the Puguang Gas Field. This contract will be delivered in 3 shipments spanning 1Q08 to 3Q08. FY08 orders represent 41% of our forecasts. These contracts bring RHE's outstanding order book to US$29.1m, of which US$7.6m will be recognised in 2H07 and US$21.5m will be recognised in FY08. To put the numbers in perspective, the secured contracts for FY08 already exceeds FY06's total revenue of US$17.0m, and represents 41% of our forecasted top-line of US$52.5m for FY08. With these major deals in its bag, RHE will enter FY08 on a strong footing. No updates on new orders for 2H07. Since our last report, RHE's secured outstanding orders for 2H07 stood at US$7.6m. This figure remains unchanged. To recap, management is aiming for another US$20m worth of deals to be secured and delivered in 2H07. Our FY07 forecast for a US$33.1m top-line hinges on its ability to meet this target. We will be able to ascertain the achievability of this target in October 2007, when there is clearer visibility of RHE's order book. Maintain BUY. RHE is beginning to prove its ability to secure large-scale projects. The US$21.2m worth of contracts brings RHE a few notches closer to our FY08 estimates. We maintain our BUY rating with fair value estimate of S$0.69 based on 16x FY08 PER.