research note

Resource Equipment (RQL) has become a victim of the glass half empty syndrome (GHES) as miners delay contract awards. RQL warned when releasing the 1H12 result that decision making was slow in the mining sector but that the number of projects bid was at record highs. Our forecasts expected 2H12 to be 55% of the total but contract awards have lagged expectations which means that 2H12 will now be about the same as 1H12 (a reduction in our FY12 forecasts of about 10%).
The good news is that in the last two weeks RQL has won A$24M of de-watering contracts which will boost FY13 EBIT by ~A$5.5M which is ~80% of the EBIT increment included in our FY13 forecasts. In our view RQL is likely to suffer a PE discount until there is more certainty with the Woodie Woodie contract and more proof that the GHES has been kept at bay. We have reduced our target price from A$0.87/sh to A$0.55/sh (based on 9xFY13 PE) and maintained our STRONG BUY call.