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18 Jul 2012

SINGAPORE EQUITYInvestment Research

DMG & Partners Research 3QFY12 Results Review Private Circulation Only

OIL & GASJason Saw+65 6232 3871jason.saw@sg.oskgroup.com

TECHNICS OIL & GAS BUY Price S$1.015

Terence Wong, CFA+65 6232 3896terence.wong@sg.oskgroup.com

Previous S$1.28

Target S$1.28

Oil & Gas

Technics Oil & Gas is a full service integratorof compression systems and processmodules for the global offshore oil and gassector.

Stock Profile/Statistics

Bloomberg Ticker TGH SPSTI 3,017Issued Share Capital (m) 223Market Capitalisation (S$m) 22652 week H | L Price (S$) 1.025 0.795Average Volume (000) 1,506YTD Returns (%) 19%Net gearing (%) 12%Altman Z-Score 2.9ROCE/WACC 3.1Beta (x) 0.72Book Value/share (S) 31

Major Shareholders (%)

Ting yew Sue 14.2%Ting Tiong Ching 6.9%Tay Mian Cheo 5.2%

Share Performance (%)

Month Absolute Relative1m 11% 4%3m 12% 11%6m 17% 8%12m 5% 8%

6-month Share Price Performance

Results above expectations; maintain BUY

Stronger earnings driven by higher margins and gain on disposal of vessel.3QFY12 net profit rose +1% YoY, +24% QoQ to S$7.5m. 9MFY12 net profit ofS$17.8m (+11% YoY) was above expectations and accounted for 86% of our

estimates. The strong results were driven by stronger gross profit margin of47.6% and S$1.78m gain from disposal of vessel. Excluding the disposal gain,recurring earnings still made up 78% of our estimate. Management also declaredan interim dividend of 8.0S, in-line with expectations. This translates into a netyield of 7.9%. As revenue and margins can be lumpy, we keep our earningsestimates unchanged. Maintain BUY with a TP of S$1.28 pegged to 12x blendedFY12/13F EPS. We see re-rating catalysts from positive earnings momentum,new order wins, and listing of its subsidiary, Norr Offshore Group, in 1H2013.

Higher contribution from EPCC projects lifted margins. 3QFY12 revenue fell14% YoY to S$39.5m. We believe this could be attributed to timing of revenuerecognition. 9MFY12 revenue is up +21% YoY. 3QFY12 gross profit marginsimproved to 48% (3QFY11: 37%) due to higher mix of revenue from EPCC

projects (higher margins than Contract Engineering). As of 18 Jul 2012, Technicshas a backlog order book of S$85m, with deliveries extending up to 1HFY13.Unlike the order book for rig builders, Technics order book has much shorterdelivery timeline and the low book-to-bill ratio should not be taken negatively.Project duration ranges between two weeks to 18 months.

Valuation: Maintain BUY with an unchanged TP of S$1.28. We value thestock based on 12x P/E on blended FY12/13F EPS, at the top of its historicalrange. The stock is now trading at 10.2x FY12F P/E and 9.0x FY13F P/E. Sinceour initiation report on 2 Jul 2012, the stock has appreciated 9% but we see moreupside. Our TP implies 26% upside from its last closing price.

FYE 30 Sep (S$m) FY10 FY11 FY12F FY13F FY14F

Turnover 103.6 125.8 165.7 198.8 238.6Reported net profit 16.4 18.7 20.6 23.3 26.7% Chg YoY 165.2 14.2 10.0 13.2 14.7Consensus nm nm 21.4 22.9 24.8EPS (S$ cents) 12.5 9.1 10.0 11.3 13.0DPS (S$ cents) 10.5 12.0 8.0 8.0 9.0Div Yield (%) 10.3 11.8 7.9 7.9 8.9ROE (%) 62.2 49.0 38.1 39.2 39.3ROA (%) 14.6 14.7 13.7 13.8 14.0P/E (x) 8.1 11.2 10.2 9.0 7.8P/B (x) 5.4 4.0 3.7 3.3 2.9

Source: Company data and DMG Estimates

0.75

0.80

0.85

0.90

0.95

1.00

1.05

17-Jan 17-Feb 17-Mar 17-Apr 17-May 17-Jun 17-Jul

Share price (S$)

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Figure 1: Quarterly financial summary

FYE 30 Sep (S$m) 3QFY11 2QFY12 3QFY12QoQ

(%)YoY(%) 9MFY11 9MFY12

YoY(%) Remarks

Profit and loss

Revenue 45.71 49.80 39.53 -21% -14% 103.05 124.65 21%

COGS -28.83 -31.15 -20.70 -63.75 -74.24

Gross profit 16.88 18.66 18.83 1% 12% 39.29 50.41 28%

EBITDA 10.93 11.42 11.24 -2% 3% 24.12 28.74 19%

Depreciation and amortisation -1.33 -1.09 -1.56 -2.92 -3.83Operating profit 9.60 10.33 9.69 -6% 1% 21.21 24.91 17%

Interest income 0.16 0.43 -0.05 0.28 1.01

Interest expense -0.31 -0.25 -0.51 -0.91 -1.07

Share of results of associates -0.08 0.00 0.00 -0.12 0.00

Exceptional items / Net otherincome

0.37 -0.51 2.00 -0.71 1.58 3QFY12: S$1.78m gainon disposal of vessel

Profit before tax 9.75 10.01 11.13 11% 14% 19.76 26.44 34%

Income tax -1.74 -1.72 -2.69 -3.89 -5.45

Minority interest -0.55 -2.23 -0.92 0.24 -3.19 Mainly attributed to NorrOffshore

Net profit 7.47 6.06 7.53 24% 1% 16.10 17.80 11% 9MFY12 net profit

accounted for 86% ofDMG estimate. Strippingout the gain fromdisposal of vessel, netprofit was 78% of DMGestimate

Analysis

Gross margins (%) 36.9 37.5 47.6 38.1 40.4 Higher mix of revenuefrom EPCC projects

Recurring EBITDA margins (%) 23.9 22.9 28.4 23.4 23.1 DMG FY12F: 20.5%

Operating profit margins (%) 21.0 20.7 24.5 20.6 20.0

% income tax to PBT 17.8 17.2 24.1 19.7 20.6 DMG FY12F: 17.0%

Net debt to total equity (x) -0.30 -0.27 -0.12 Net gearing improved

due to sale of vesselNet Asset Value (S$ cents) 27.2 27.4 31.0

Source: Company data and DMG estimates

Figure 2: Backlog order book reported Figure 3: Quarterly GP margins

Source: Company data Source: Company data and DMG estimates

83

121130

103

141

119

9685

0

20

40

60

80

100

120

140

160

Order book (S$m)

10.0

20.0

30.0

40.0

50.0

60.0

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

GP margins (%)

Quarterly GP margins

Trailing 12m GPmargins

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FINANCIAL TABLES

FYE 30 Sep (S$m) FY10 FY11 FY12F FY13F FY14F

Income statementRevenue 103.6 125.8 165.7 198.8 238.6

Expenses (except D&A) -77.3 -102.0 -131.7 -160.4 -195.7

EBITDA 26.3 23.8 34.0 38.4 42.8

Depreciation and amortisation -2.4 -3.4 -4.4 -5.0 -5.5

EBIT 23.9 20.4 29.6 33.4 37.4

Interest income 0.1 1.9 2.3 1.9 2.1

Interest expense -1.4 -1.3 -1.2 -1.2 -1.2

Share of results of associates/JVs -0.9 0.0 0.0 0.0 0.0

Exceptional items -2.3 0.2 0.0 0.0 0.0

Profit before tax 19.4 21.3 30.6 34.1 38.2

Income tax -4.8 -4.5 -5.2 -5.8 -6.5

Minority interest 1.8 1.9 -4.8 -5.0 -5.0

Net profit (reported) 16.4 18.7 20.6 23.3 26.7

Net profit (pre-exceptional/core) 18.7 18.5 20.6 23.3 26.7

Balance Sheet

Total Assets 112.0 141.9 159.7 178.8 202.8

Fixed assets 31.4 34.1 39.7 44.7 49.3

Other long-term assets 0.0 12.1 12.1 12.1 12.1

Inventory 9.3 8.7 9.1 10.9 13.1

Receivables 13.1 30.0 34.0 40.9 49.0Other short-term assets 13.0 36.2 43.2 43.2 43.2

Cash and short term investment 45.3 20.8 21.6 27.0 36.1

Total Liabilities 88.5 92.7 101.7 108.9 117.6

ST debt 30.4 36.9 33.1 33.1 33.1

Payables 18.9 27.3 36.3 43.6 52.3

Other short-term liabilities 33.0 22.7 22.7 22.7 22.7

LT debt 5.1 4.5 8.3 8.3 8.3

Other long-term liabilities 1.0 1.2 1.2 1.2 1.2

Total Equity 23.6 49.2 58.1 69.9 85.1

Shareholders' funds 24.5 51.9 56.0 62.9 73.1

Minorities -0.9 -2.8 2.0 7.0 12.0

Cash Flow Statement

Operating cashflow 45.5 -10.4 33.3 31.2 34.7

Capex & acquisitions -11.4 -5.9 -10.0 -10.0 -10.0Free cashflow 34.1 -16.3 23.3 21.2 24.7

Other inv cashflow -1.3 -14.6 -7.0 0.0 0.0

New borrowings -1.7 10.8 0.0 0.0 0.0

Share issuance 0.0 41.1 0.0 0.0 0.0

Dividends paid 0.0 -31.8 -16.5 -16.5 -16.5

Other fin cashflow -12.8 -5.9 1.0 0.7 0.8

Net cashflow 18.3 -16.8 0.8 5.4 9.1

YoY Growth

Revenue (%) -20% 21% 32% 20% 20%

Operating profit (%) 152% -14% 45% 13% 12%

Profit before tax (%) 182% 10% 43% 11% 12%

Net profit (%) 165% 14% 10% 13% 15%

MarginsEBITDA (%) 25.4% 18.9% 20.5% 19.3% 18.0%

EBIT (%) 23.1% 16.3% 17.8% 16.8% 15.7%

PBT (%) 18.7% 17.0% 18.5% 17.1% 16.0%

Per Share Data

Outstanding shares 131 206 206 206 206

EPS (S cents) 12.5 9.1 10.0 11.3 13.0

DPS (S cents) 10.5 12.0 8.0 8.0 9.0

BVPS (S cents) 18.7 25.2 27.2 30.5 35.5

ROE (%) 62.2 49.0 38.1 39.2 39.3

ROA (%) 14.6 14.7 13.7 13.8 14.0

Net debt-to-total equity (%) Net cash 42.0 34.1 20.6 6.3

P/E (DMG) 8.1 11.2 10.2 9.0 7.8

P/B (x) 5.4 4.0 3.7 3.3 2.9

Dividend yield (%) 10.3 11.8 7.9 7.9 8.9

Source: Company data and DMG estimates

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DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain

Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months

Not Rated: Stock is not within regular research coverage

DISCLAIMERS

This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specificinvestment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluateparticular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation toany securities or investment instruments mentioned in this report.

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As of the day before 18 July 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered inthis report, except for:

Analyst Companya) Nilb) Nil

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