OEC – Orbital Corporation | Aussie Stock Forums

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Orbital Engine Company (OEC) 28c

Tim Boreham | August 03, 2007

HERE’S one that has snuck under the investor radar – and no wonder. The Perth-based outfit long ago scrapped its orbital engine plans, with founder Ralph Sarich now dabbling in property (and more successfully).

Yet Orbital presses the right eco-buttons in promoting its direct-injection (DI) technology, which promotes cleaner engines and fuel efficiency.

Orbital is also a China and India story, so say no more. In China, 20 million extra bikes contribute to the pea-soup atmosphere. All of them use carburettors, a cutting-edge innovation when invented back in 1893.

Orbital already enjoys royalty flows from makers of scooters, motorbikes and outboards, with its DI used in 500,000 engines.

In India, licensee Bajaj Auto is producing a direct-injected auto-rickshaw. Early indications suggest fuel gains of 30 per cent. So if DI is used on Bajaj’s 350,000 units, climate change is licked and our Hollywood starlets can move on to world poverty or the fate of performing bears.

Orbital also is a joint venturer in Synerject with Siemens VDO Automotive, which makes the DI componentry, as well as other non-related products for non-vehicle manufacturers. An engineering services arm provides a third revenue stream.

Orbital has been edging towards profits — $500,000 in calendar 2006. But if the muttering around Hay Street is right, Orbital’s on the cusp of winning a big DI contract.

Orbital head Rod Houston wasn’t available for comment yesterday but has already flagged the first four-stroke product will be launched this financial year. Orbital’s been keeping a Pentagon-like silence about a project X collaboration with Yamaha. The idle talk in trendy Subiaco bars and Fremantle boutique breweries points to Yamaha or Honda. Polaris, which pumps out 100,000 snowmobiles a year, should not be overlooked either.

Last month, Orbital flagged an improved profit for the year to June 2007. The result will be underpinned by engineering services, which made $2 million in the first half before orders slowed in the second half.

Earnings from the US-based Synerject will be hit by the rising $A against the $US, with previous results dragged down by start-up costs in China.

Broker Patersons expects earnings of $2 million for 2006-07 (EPS of 0.8c). The firm has also pencilled in $5.8 million (1.2c) in 2007-08, subject to review after the 2006-07 full-year results on August 23.

Despite its low-key rehabilitation, Orbital has attracted a base of auto-savvy groupies on the register, but fundies aren’t listening. It’s understandable given DI non-starters include Ford, Saab and Mercedes.

Houston says Orbital should blast off as Synerject’s Chinese investment delivers by the start of 2007-08. If not, it’s a case of “Houston, we have a problem”. Speculative buy.