Sector update and quarterly preview Asia Offshore ...€¦ · Sector update and quarterly preview...

Sector update and quarterly preview Asia Offshore

Divergence between sector’s fundamentals and share prices Asian Offshore Supply 17.10.2011 Asian Offshore Supply vs STI (12m)

70

80

90

100

110

120

130

Oct Dec Feb Apr Jun Aug Oct

Asian Offshore Supply

STI (Rebased)

Analysts: Kay Lim, CFA +65 6220 5123 [email protected] Simon Jong +65 6223 3604 [email protected] Thor Andre Lunder +44(0)20 7621 6085 [email protected] Please see the last page for important information.

In this market, macro factors are more influential than industry- and company-specifics. The recent rout in shares prices has wiped USD10bn off market values in our coverage list since August (-28%, versus the market’s -14%). We argue that investors have overreacted due to the sector’s cyclical nature and have discounted a weaker cycle (33% discount to long-term NAV, attractive earnings multiples – Asian players trading at 7x 2012e P/E) than in a normalised period (valuations near to NAV and 10-12x 2012e P/E, while trough was 4x). The sector’s fundamentals remain positive, driven by top-down (rising E&P spending) and bottom-up (valuations and company-specific) factors.

Company Rec Previous Rec Currency TP Prev TPShare price Upside

Swiber Singapore 226 BUY BUY SGD 1.00 1.00 0.57 77%Ezra Singapore 604 BUY HOLD SGD 1.20 1.45 0.97 24%Otto Marine Singapore 208 SELL SELL SGD 0.12 0.14 0.14 -14%ASL Marine Singapore 174 BUY BUY SGD 0.85 0.85 0.53 62%CH Offshore Singapore 219 BUY BUY SGD 0.65 0.65 0.40 65%Ezion Singapore 315 BUY BUY SGD 0.90 0.90 0.53 70%KS Energy Singapore 317 BUY BUY SGD 1.22 1.22 0.99 23%Jaya Singapore 273 BUY BUY SGD 0.90 0.90 0.45 100%Kencana Malaysia 1,571 Under review Under review MYR 2.15 2.15 2.54 -15%SapuraCrest Malaysia 1,677 Under review Under review MYR 3.00 3.00 3.90 -23%EOC Norway 122 HOLD HOLD NOK 7.0 7.0 6.2 13%Kreuz Singapore 130 BUY BUY SGD 0.45 0.45 0.33 38%Keppel Singapore 12,196 BUY BUY SGD 10.00 10.00 8.70 15%Sembcorp Marine Singapore 6,293 BUY BUY SGD 4.70 4.70 3.86 22%STX OSV Singapore 1,041 BUY BUY SGD 1.90 1.90 1.12 70%

Country listed

Market cap (USDm)

• Divergence between share prices and activity. In our view, there is a

divergence between what is discounted in Asian companies’ share prices and real activity. We argue that E&P spending (our annual survey, done in August, pointing to 14% growth and oil price has held up well since then) is a good leading indicator of forward earnings in the oil services industry, and is expected to drive activity in offshore support over the next 1–3 years. Activity (projects, enquiries, tenders, utilisation, requirements) remains robust in most markets, largely unaffected by macro conditions. Macro weakness could result in a short-term slowdown, but we remain optimistic on the sector’s medium- and long-term fundamentals. This is likely to have a positive impact on Asian oil services companies’ 2012–2013 earnings.

• Investment approach. We advise investors to be selective, and we favour companies with a high ROE, high FCF-generating assets, and a solid balance sheet (low gearing). Factors that differentiate stronger companies include asset quality, good management and soft factors. We believe that companies with these attributes, backed by the fundamentals to capitalise on opportunities and that are more likely to emerge even stronger, include:

Large caps: SMM (BUY), KEP (BUY). We believe their share prices should be the first to move when buying resumes, as they are perceived as stronger and their blue-chip status offers trading liquidity. Both are priced attractively against their normalised earnings cycle.

Mid-caps: STX OSV (BUY) for its undemanding multiples, high ROE, strong FCF-generating business backing our DCF, strong balance sheet (net cash and low capex), good dividend yield, high quality order book, and good trading liquidity.

Small caps: Ezion (BUY) and Jaya (BUY). We include Ezion as a good FCF-generating business (key assets locked-in by term contracts), and Jaya for its changing business model that could put it on the M&A radar of offshore companies, where investors have yet to price in the potential upside. Other small-caps under our coverage are trading at attractive valuations, but this might not be the right time to go long unless one is willing to stomach higher volatility and lower trading liquidity.

• Recommendation change. We have upgraded Ezra from HOLD to BUY.

Sector report > Asian Offshore Supply

DnB NOR Markets - 2

17.10.2011

Table of Contents

ASIAN OFFSHORE SECTOR UPDATE ................................................. 3

COMPANY SPECIFICS – QUARTERLY PREVIEW FOCUS................... 18

ASL MARINE (BUY, TP SGD0.85) ................................................... 19

CH OFFSHORE (BUY, TP SGD0.65) ................................................. 25

EOC LIMITED (HOLD, TP NOK7) .................................................... 30

EZION HOLDINGS (BUY, TP SGD0.90) ........................................... 35

EZRA HOLDINGS (UPGRADE TO BUY, TP SGD1.20)........................ 41

JAYA HOLDINGS (BUY, TP SGD0.90) ............................................. 53

KENCANA PETROLEUM (UNDER REVIEW) ...................................... 60

KEPPEL CORP (BUY, TP SGD10)..................................................... 65

KREUZ HOLDINGS (BUY, TP SGD0.45)........................................... 76

KS ENERGY (BUY, TP SGD1.22) ..................................................... 81

OTTO MARINE (SELL, TP CUT TO SGD0.12) ................................... 87

SAPURACREST PETROLEUM (UNDER REVIEW) .............................. 95

SEMBCORP MARINE (BUY, TP SGD4.70) ....................................... 101

STX OSV (BUY, TP SGD1.90)........................................................ 113

SWIBER HOLDINGS (BUY, TP SGD1) ........................................... 120


DnB NOR Markets - 3

17.10.2011

Asian offshore sector update Key investment thesis– activity remains strong at industry level With the 2008 global financial crisis still fresh in most investors’ memory, there is plenty of fear and pessimism in current investment judgment. The macro sell-down has systematically driven Asian offshore shares lower. The sector (including yards) has underperformed the market, -25% YTD versus the market’s -14%. We believe this is driven mainly by investors’ fear that persistent macro weakness could eventually drive oil prices down and lead to E&P spending cuts.

Macro factors have become more influential than industry and company-specifics in today’s market. Therefore, it is challenging to call the bottom in the sector. However, with the sharp drop in share prices over past two months (though prices have rebounded somewhat lately) beyond the general market weakness, we argue that the selling is overdone and the sector looks attractive, with higher risk/reward payoffs. We argue that investors have overreacted due to the sector’s cyclical nature and have discounted a weaker cycle (33% discount to long-term NAV, depressed earnings multiples – Asian players trading at 7x 2012e P/E) than in a normalised period.

At the industry level, activity (projects, enquiries, tenders, utilisation, requirements, and contracts) remains robust in most markets, and seems largely unaffected by current macro conditions. Macro weakness could result in a short-term slowdown, but we remain optimistic on the medium- and long-term fundamentals of the sector.

From a top-down analysis, we believe a central driver of the offshore support industry is the aggregate level of oil companies’ E&P spending. From a bottom-up approach, we believe the fundamentals of a strong balance sheet, a robust business model, competitive strategies along with good execution, and a growing industry, drive returns and share prices longer-term.

In our view, there is a divergence between what is discounted in Asian companies’ share prices and real activity (fundamentals) on the ground, i.e. their intrinsic value. A company’s intrinsic value (NAV) is ultimately driven by its expected net cash flow, timing of cash flow, growth and risks. We argue that E&P spending is a good leading indicator in driving forward earnings of the oil services industry. Our fifth annual E&P spending survey this year pointed to 14% growth, which is expected to drive activity in the offshore support segment over the next 1–3 years. This is likely to have a positive impact on the earnings of Asian oil services companies in 2012–2013. Risk aversion should fall when companies’ earnings beat market expectations implied in current share prices.

Approach/strategy in the current market We advise investors to be selective in this market. We favour companies with a high ROE, high free cash flow-generating assets, and a solid balance sheet (low gearing). Factors that differentiate stronger companies include:

• Asset quality. Most Asian offshore companies’ main assets are OSVs, which many regard as a form of commodity; we believe otherwise. We argue that quality is important and this varies based on different specs.

• Good management is required to ensure that optimal returns from assets are generated, i.e. good returns from normal assets in contrast to weak returns from good assets.

• Soft factors. Skill-sets are important, along with project planning, relationships, R&D, and market knowledge.

We believe that companies with these attributes, backed by the fundamentals to capitalise on opportunities and that are more likely to emerge even stronger, include:

• Large cap: SMM (BUY), KEP (BUY). We believe their share prices should be the first to move when buying resumes, as they are perceived as stronger and their blue-chip status offers trading liquidity.

• Mid cap: STX OSV (BUY), also our top pick, for its undemanding multiples, high ROE, strong FCF generating business backing our DCF valuation (with high barriers to entry as a high-end OSV yard), strong


DnB NOR Markets - 4

17.10.2011

Brent price: staying resilient

Brent price

0

20

40

60

80

100

120

140

160

Ap

r-0

7

Jun

-07

Au

g-0

7

Oct

-07

De

c-0

7

Fe

b-0

8

Ap

r-0

8

Jun

-08

Au

g-0

8

Oct

-08

De

c-0

8

Fe

b-0

9

Ap

r-0

9

Jun

-09

Au

g-0

9

Oct

-09

De

c-0

9

Fe

b-1

0A

pr-

10

Jun

-10

Au

g-1

0O

ct-1

0

De

c-1

0

Fe

b-1

1A

pr-

11

Jun

-11

Au

g-1

1

US

D

Source: Bloomberg

balance sheet (net cash and low capex), good dividend yield of 5% (minimum payout ratio of 30%), high quality order book of NOK16.7bn offering 17 months visibility, and good trading liquidity (average SGD12m shares traded daily).

• Small cap: Ezion (BUY) and Jaya (BUY). We include Ezion as a good FCF generating business, and Jaya for its changing business model that would likely put it on the M&A radar of offshore companies, where investors have yet to price in the potential upside. Other selected small-caps under our coverage are trading at attractive valuations, but now might not be the right time to go long unless one is willing to stomach the higher volatility and lower trading liquidity. The imbalances of supply (some small-cap names are tightly held by founding families) and demand of shares in the market can result in huge price swings.

We still advise investors to avoid Otto Marine (SELL), due to the potential negative triggers (see later in the note).

Key recommendation and price target changes of our Asian coverage

Company Rec Previous Rec Currency TP Prev TP

Swiber Singapore BUY BUY SGD 1.00 1.00Ezra Singapore BUY HOLD SGD 1.20 1.45Otto Marine Singapore SELL SELL SGD 0.12 0.14ASL Marine Singapore BUY BUY SGD 0.85 0.85CH Offshore Singapore BUY BUY SGD 0.65 0.65Ezion Singapore BUY BUY SGD 0.90 0.90KS Energy Singapore BUY BUY SGD 1.22 1.22Jaya Singapore BUY BUY SGD 0.90 0.90Kencana Malaysia Under review Under review MYR 2.15 2.15SapuraCrest Malaysia Under review Under review MYR 3.00 3.00EOC Norway HOLD HOLD NOK 7.0 7.0Kreuz Singapore BUY BUY SGD 0.45 0.45Keppel Singapore BUY BUY SGD 10.00 10.00Sembcorp Marine Singapore BUY BUY SGD 4.70 4.70STX OSV Singapore BUY BUY SGD 1.90 1.90

Country listed

Source: DnB NOR Markets

Pricing in a weaker-than-normalised cycle The macro sell-down has systematically driven down the price of Asian offshore shares. The Asian offshore sector (including yards) has underperformed the broader market, down 25% YTD compared to the general market decline of 14%. We believe this is mainly driven by investors’ fear that persistent economic weakness could eventually drive oil prices lower, resulting in a reduction in E&P spending. Short-term bearish factors to oil prices include the acceleration of reduced demand globally (on the back of weak US data, and decline in Chinese demand).

We acknowledge that macro headwinds can dampen and slow investment decisions. However, beyond short-term bearish factors, the Brent oil price, down 5% since the August sell-off, remains robust at USD111/bbl, supported by medium-term fundamentals (non-OECD demand still grows far more quickly than non-OPEC supply), low spare capacity and larger OPEC budget requirements.

Brent oil’s current price of USD111/bbl, provides an attractive price environment, and in turn, a favourable investment climate for oil companies.

Would activity level track recent bearish share price movements? As touched on earlier, macro issues have become a larger swing factor than industry and company-specifics in today’s market. Therefore it is a challenge to call the bottom of the Asian offshore sector. However, with a sharp fall in share prices beyond general market weakness, we argue that the selling is overdone and that the sector looks attractive with higher risk/reward payoffs.

We argue that investors have overreacted due to the sector’s cyclical nature and have discounted a weaker cycle than in a normalised period (33% discount to long-term NAV, attractive earnings multiples – Asian players trading at 7x 2012e P/E).


DnB NOR Markets - 5

17.10.2011

Capex split for E&P


At the industry level, activity (projects, enquiries, tenders, utilisation, requirements, and contracts) remains robust in most markets, and seems largely unaffected by current macro conditions. Macro weakness may result in a short-term slowdown, but we remain optimistic on the medium- and long-term fundamentals of the sector.

E&P spending – leading industry barometer From a top-down analysis, we believe that a central driver of the offshore support industry is the aggregate level of oil companies’ E&P spending. E&P spending is dependent on several underlying factors, with the oil price, major oil discoveries, and demand for oil and gas being the most important.

In our view, there is a divergence between what is discounted in share prices of Asian companies and real activity (fundamentals) on the ground. We see a large divergence between what is discounted in current share prices and their intrinsic values. A company’s intrinsic value (NAV) is ultimately driven by its expected net cash flow, timing of cash flow, growth and risks. We argue that E&P spending is a good leading indicator in driving forward earnings of the oil services industry.

We do not believe current activity (driven by E&P) is behind the curve and would track recent share price movements, which are pointing to negative momentum. Our fifth annual E&P spending survey this year pointed to 14% growth, which is expected to drive activity levels in the offshore support segment over the next 1–3 years. This is likely to have a positive impact on the earnings of Asian oil services companies in 2012–2013.

Risk aversion should fall when companies’ earnings beat market expectations. Asset prices should grow ahead of the rates and activity cycle, but current share prices are not reflecting this.

Total E&P spending forecast set to increase 14% in 2011e

0

100,000

200,000

300,000

400,000

500,000

600,000

1975

1980

1990

2000

2005

2010

2011e

2012e

2013e

USDm

0

20

40

60

80

100

120

USD/bbl

E&P Spending WTI crude price

14%

8%

7%

Source: DnB NOR Markets, FactSet

Prices for oil services have increased, pointing to supply tightening The CERA index is expected to increase by 5% in 2011 YOY. This is due to a normalisation from the dip in 2009 and increased E&P spending.


DnB NOR Markets - 6

17.10.2011

Increased growth in 2011

100

120

140

160

180

200

220

240

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011CERA u

pst

ream

cap

ital

cos

t in

dex

Source: DnB NOR Markets, CERA

Activity still going strong, in fact improving Based on industry data points and sources, activity levels (fixtures, contracts, enquiries, tenders) in various divisions (subsea, seismic, drilling, support) are picking up, with some markets (Saudi, North Sea, increasingly the Arctic, Australia, SEA – Malaysia, Thailand and Indonesia) showing strong demand for oil services. These E&P projects typically have a long lifecycle, implying that the current cycle is not yet over.

In our E&P report, based on the surveyed oil companies’ expectations, we estimate this year’s oil service prices to increase by 5% YOY, implying 9% activity growth.

Activity growth and inflation increases

-10 %

0 %

10 %

20 %

30 %

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e

Activity growth Cost inflation


We adopt the view that activity momentum could continue to drive utilisation and rates of the Asian oil services players, in turn driving their earnings. This would result in earnings multiples compression and higher valuations warranted for the sector. The combination of depressed valuations in the sector and the resumption of earnings growth create attractive entry points for some companies in Asia.

Certainty of oil production remains the focus of oil companies The price of oil will always be one of the key drivers of spending; however, forecasting oil prices is a real challenge. The focus of oil companies is not on timing the market (introducing new production when oil prices are high) but rather on being confident in their oil production supply. We are facing a structural decline in oil supply and the global oil replacement ratio is 87%. Hence, this increases the urgency for oil companies to replace oil produced. Any late production will directly affect cash flows and incur revenue losses by way of lost opportunities, which is not in the interest of oil companies.


DnB NOR Markets - 7

17.10.2011

Demand/supply Number of offshore supply vessels per ‘demand unit’ to come down in 2012e (assuming all demand units secure work) Number of vessels per demand unit increased as a result of more deepwater projects, subsea work, longer distances between installations, and safety regulations

High oil price needed to balance higher marginal cost of production The marginal cost of production is another key consideration – shallow water work is still very profitable at current oil price, with a USD25–35/day of production cost. The higher cost of production from deepwater fields, where the growth and marginal bbl of oil is likely to be found, would need oil prices at high levels to attract the returns and opportunity cost required by oil companies to invest in E&P in these regions.

Relationship between long-term production cost of oil and long-term hurdle rates

0

20

40

60

80

100

0 1000 2000 3000 4000 5000 6000 7000 8000Bill ion boe

Produ

ctio

n c

ost

USD

/boe

Hurdle rate Long Term (2010 report) Hurdle rate Long Term (2011 report)

CO

, EO

R

Arc

tic

Heavy oil and

bitumen

Produced

Other convent-ional oil

Oil shales

Gas to liquids

MENA

Deep and ultra

deepwater

FOR

Source: DnB NOR Markets, IEA – World Energy Outlook 2010, Schlumberger

Improving OSV demand/supply balance The ratio of OSV to one rig is expected to fall to 2.9 in 2012 and 2.8 in 2013, versus 3.0 in 2010–2011, pointing to an improving demand/supply balance.

We expect demand to pick up significantly in 2012, driven by: 1) the influx of new rig units entering the market requiring OSV support; 2) a healthier demand/supply balance in the OSV fleet due to fewer post-crisis vessel orders; and 3) improved activity from growth in E&P operations. We believe the market will be able to absorb the enlarged OSV fleet by 2012. Newbuild vessels entering the market over the next 1–2 years were mostly ordered during the peak in 2008–2009. Since the cycle turned, we have seen few new vessel orders. As a result, the demand/supply balance has improved, with a slowing rate of acceleration in the supply of vessels from 2011e.

We estimate that offshore supply vessels per ‘demand unit’ could peak in 2011. Over the past 20 years, the ratio has increased from 1.7x to 3x, driven by more subsea work, deepwater projects, longer distances between installations and more safety regulations.

With increasing E&P focus in the deepwater fields and difficult working conditions, the number of OSVs supporting an offshore rig installation is expected to rise. If this trend continues, combined with an ageing fleet and the potential ratio peak in 2011, the market should get tighter in 2012.

New rig orders driving incremental demand We maintain that new rigs ordered in the current cycle (from October 2010) including 56 jack-ups (21 outstanding options to be exercised) and 41 UDW floaters (15 outstanding options to be exercised) will require the support services of OSVs when they are delivered and working in 2013–2014e.

The key risk to our assumptions is weaker than expected utilisation for the ‘demand side’ rigs.


DnB NOR Markets - 8

17.10.2011

Demand expected to absorb excess tonnage

Ratio of OSV to installations, based on current known units

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011E

2012E

2013E

Ratio numerator: current fleet +

initial newbuilds based on ODS

data

Ratio numerator:

current fleet + adjusted newbuilds

based on our expectations

Adjusted for expected number of new rig units and fleet retirement

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011E

2012E

2013E

In red - Ratio numerator: current

fleet + initial newbuilds based on

ODS data In blue - Ratio numerator: current fleet + adjusted newbuilds based on our expectations and new

additional rigs

Excluding OSVs and rigs above 20 years

Source: ODS-Petrodata and DnB NOR Markets

NAV of OSVs Our NAV estimates are based on generic vessels, the prices of which differ according to the special equipment and varying technical specifications, even if vessels are identical in size. We have valued the fair market value of OSVs based on the following factors (note: we have made no significant changes): • Second-hand market values of comparable vessels (discounted to present

values if vessels are delivered in future years) from independent shipbrokers and shipowners (including the companies under our coverage, where we have cross-checked our values with management), and recent transacted prices collected mainly from ODS, RS Platou and Clarksons;

• DCF of floor values of vessels if they are backed by term charters; • In-house research (our long-term DCF and earnings assumptions on each

type of vessel); • The percentage mark-up of the cost of building vessels from similar yards,

adjusted for contracts between now and the newbuild delivery date; and • Multiples in the industry, using EV/EBITDA as a benchmark, with EBITDA

forecasts based on existing charter rates or long-term rates.

DnB NOR base case FMV estimates for OSVs

Type Capacity (BHP)

Year Built

DnB NOR fair value estimates (USDm)

Type Capacity (DWT) Year Built

DnB NOR fair value estimates (USDm)

AHTS 28,000 2011 90 PSV 5,250 2011 55AHTS 24,000 2011 80 PSV 4,500 2011 45AHTS 22,000 2011 75 PSV 4,250 2011 40AHTS 20,000 2011 70 PSV 3,800 2011 30AHTS 18,500 2011 62 PSV 3,250 2011 25AHTS 17,500 2011 55 PSV 2,500 2011 18AHTS 16,500 2011 50 PSV 1,800 2011 13AHTS 15,500 2011 40AHTS 12,240 2011 35AHTS 10,800 2011 30AHTS 8,500 2011 25AHTS 6,500 2011 17AHTS 5,150 2011 13AHTS 4,800 2011 8


Market values of AHTS and PSV over past decade

Market values of AHTS

0

20

40

60

80

100

120

140

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

AHTS (in BHP)

USD

m

28000+ 18500+ 12000+ 5000+

Market values of PSV

0

10

20

30

40

50

60

70

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PSV (in DWT)

USD

m

4200+ 3300+ 1500+

Source: RSPO and DnB NOR Markets


DnB NOR Markets - 9

17.10.2011

OSV vessel price trend – more data points to support our NAV We saw strong sales and purchase activity in the secondary market (21 OSVs changed hands) in September 2011. These transactions continue to offer support to our fair value (NAV) framework on similar types of vessels, after adjusting for age differences and specifications. Since 2010, the average and mean variance (transacted values minus our NAV for the 53 transactions with disclosed sale values) were positive USD1.7m and USD0.4m, respectively.

We argue that the current implied NAV (based on current share prices) of most Asian oil services players do not reflect a normalised cycle. Shares of offshore companies under our coverage (BUY recommendations) are trading at an average discount to NAV of 33%. Therefore, we believe that the current divergence between asset pricing and NAV offers high safety margins and an attractive risk/reward in selected offshore companies.

Using current dayrates as the input for long-term earnings capacity of a vessel and attaching the NAV as the capital outlay of that vessel, the projected asset yield is c11–15%. This is attractive among most asset classes. Coupled with the expectation of higher rates and utilisation from 2012, we believe that current asset prices offer a favourable risk/reward for investors.


DnB NOR Markets - 10

17.10.2011

Transactions supporting our NAV Secondary market transactions

Date Type Vessel name Built (Yr)Size (dwt/

bhp) Seller BuyerValue

(USDm)

DnB NOR fair value

est (USDm)Variance (USDm)

Feb-10 PSV Krestrel K 2010 2,500 RK Offshore Tag Offshore 17 18 -1Feb-10 PSV Greatship Mohini 2010 4,600 Greatship Rem Offshore 45 45 0Feb-10 AHTS JM Gagah 2003 5,500 Jasa Merin Undisclosed 9 13 -4May-10 AHTS Skandi Emerald 2010 16,300 DOF Vietsovpetro 65 50 15May-10 AHTS Jaya Alliance 2009 5,150 Jaya Myklebusthaug 12 13 -1Jun-10 AHTS Petra Marathon 2010 12,240 Petra Perdana Up for sale 33 35 -2Jun-10 AHTS Petra Commander 2010 12,240 Petra Perdana Up for sale 33 35 -2Jun-10 AHTS Temasek Attaka 2001 5,400 CHO Bahtera 10 13 -4Jul-10 PSV Seabed Viking 2010 4,000 Norside Farstad 48 40 8Jul-10 PSV DOF TBN1 2010 4,800 DOF TBC 54 50 4Jul-10 PSV DOF TBN2 2011 4,800 DOF TBC 54 50 4Jul-10 PSV OOC Cheetah 2010 3,250 Bharati Shipyard Great Offshore 28 25 3Jul-10 AHTS Sanko C-series x 2009 9,500 Sanko Offshore Tidewater 25 27 -2Sep-10 PSV CS Topper 2001 3,835 Boa Offshore Topaz Marine 44 30 14Aug-10 AHTS Sanko Cosmos 2009 9,500 Sanko Offshore Tidewater 25 28 -3Aug-10 AHTS Sanko Cherry 2009 9,500 Sanko Offshore Tidewater 25 28 -3Aug-10 AHTS Redfish 1 2010 8,000 Otto Marine TBC 22 23 -2Oct-10 PSV Boa Rover 2001 3,835 Boa Offshore Topaz Marine 44 30 14Oct-10 PSV Newbuild 2011 3,200 Drydocks Tidewater 25 25 0Nov-10 AHTS Levoli Coral 2010 6,500 Pacific First Shipping Marnavi 18 17 1Nov-10 AHTS Amber 2005 4,800 CHO PT Bahtera 10 8 2Nov-10 AHTS Pearl 2008 12,240 CHO PT Bahtera 30 35 -5Dec-10 PSV Otto Explorer 2 2010 3,200 Otto Marine Ezra 34 26 8Jan-11 PSV Trico Sabre 2009 3,100 Trico Marine Ezra 26 25 1Jan-11 PSV Trico Star 2010 3,100 Trico Marine Ezra 26 25 1Jan-11 PSV Siem Mollie 2007 3,500 Siem Offshore Ezra 32 28 4Mar-11 AHTS Sea Marten 2010 6,800 Deep Sea Supply Topaz Marine 20 18 2Mar-11 AHTS Sea Otter 2007 6,500 Deep Sea Supply Topaz Marine 20 16 4Mar-11 PSV Siddis Mariner 2011 4,500 OH Meling Siem Offshore 61 45 16Apr-11 PSV Oak River 1974 1,082 Trico Marine Coastland Energy 1.1 - -Apr-11 PSV Roe River 1979 676 Trico Marine Coastland Energy 1.2 - -Apr-11 PSV Elm River 1981 980 Trico Marine Marine Energy 1.2 - -Apr-11 PSV Suwannee River 1977 584 Trico Marine Odekele Internati 0.7 - -Apr-11 AHTS Kerob Express 1975 1,150 Vroon BM Chart 1.5 - -Apr-11 PSV Newbuild 2010 3,200 Otto Marine Mermaid Marine 32 38 -7Apr-11 AHTS Newbuild 2010 8,000 Otto Marine Undisclosed 22 23 -1Apr-11 AHTS Newbuild 2010 8,000 Otto Marine Undisclosed 22 23 -1May-11 PSV Trico Service 2011 3,100 Trico Marine Ezra Holdings 27 25 2May-11 PSV Gulf sabre 1988 1,162 Gulf Fleet Bank One Equity 2 - -May-11 PSV Palma River 1988 1,226 Trico Marine Odyssea Marine 3 - -May-11 PSV Trinity River 1979 750 Trico Marine Lanex Corp 1 - -May-11 PSV Mana 2008 3,300 Global Offshore ServicSubsidiary of Glob 26 26 0May-11 PSV Otto Explorer 2009 3,200 Otto Marine Mermaid Marine A 32 25 7May-11 AHTS Redfish 3 2011 8,000 Otto Marine Undisclosed 22 23 -1May-11 AHTS Redfish 4 2011 8,000 Otto Marine Undisclosed 22 23 -1Jun-11 AHTS VOS Odyssey 1987 5,330 Vroon Offshore PT Wintermar 3 -Jul-11 AHTS Sanko Dragon 2006 8,160 Sanko Line Huawei Offshore 17 21 -4Jul-11 AHTS Jaya Almanac 2008 5,120 Jaya Offshore PT Logindo Samu 11 12 -1Jul-11 AHTS Sea Lion 2008 17,520 Deep Sea Supply Gazflot 63 56 7Aug-11 AHTS MP Prelude 2011 8,000 Marco Polo Marine PT Bina 20 22 -2Sep-11 AHTS MP Premier 2011 8,000 Marco Polo Marine PT Bina 20 22 -2Sep-11 AHTS - 2011 5,250 Nam Cheong Omni Offshore 14 13 1Sep-11 AHTS PFS Force 2010 6,500 Pacific First Shipping Tag Offshore 18 17 1Oct-11 AHTS Redfish 2 2010 8,000 Otto Marine Go Offshore 24 24 1Oct-11 PSV Malaviya Thirty O 2011 3,250 Great Offshore POSH Semco 31 25 6Median 0.4Average 1.7 Source: DnB NOR Markets, ODS, RS Platou, Company



17.10.2011

OSV rates outlook – uptrend expected Information on rates in various international markets (Asia, West Africa) is generally not widely available as most contract terms are kept private by companies and operators. The North Sea spot market is traditionally a good indicator of the direction of international rates. Typically, we use the North Sea spot market, where information is widely available, as the proxy to establish a sense of how rates might develop internationally.

Average AHTS utilisation in the North Sea spot market was c72% from January to September 2011, compared with 67% over the same period last year, 65% in 2009 and 70% in 2008, without adjusting for the increase in the supply of vessels between 2008 and 2011.

For PSV, average utilisation in the North Sea spot market was c80% from January to September 2011, compared with 87% over the same period last year, 76% in 2009 and 83% in 2008, again, without adjusting for the increase in the supply of vessels between 2008 and 2011.

In terms of chartering rates in the North Sea spot market, YTD rates have strengthened YOY and even tested 2007 levels in some months. In the 13–18k bhp AHTS category, the average spot charter rates YTD, at GBP19,600/day, are higher than the 2010 average of GBP13,500/day. And in this year so far, June rates of GBP36,800 had briefly crossed the 2007 average of GBP34,100, which is an encouraging sign given that 2007 was the peak year in the cycle.

In the 18k+ bhp AHTS category, the average spot rate YTD is GBP27,500/day, 47% above the 2010 average of GBP18,700. In August and September, rates (averaging GBP48,000) moved close to the 2007 average of GBP51,600.

For the PSV category, charter rates are also rising. In Q3 2011, the smaller PSV (<3000dwt) was commanding an average close to GBP18,000/day (versus a 2010 average of GBP10,900 and a 2007 average of GBP21,600), while the larger PSV (>4,000dwt) was earning GBP19,500/day (compared with a 2010 average of GBP13,800 and 2007 average of GBP26,000).

We expect rates to strengthen further in 2012. Recent market weakness has not changed our belief that dayrates are likely to trend up as the supply/demand balance gets tighter in some markets. Internationally, we see increasing OSV fixtures and requirements in markets such as Malaysia, Indonesia, Vietnam, Thailand, the Middle East (Saudi Arabia, Qatar, Abu Dhabi), West Africa (Guinea), Brazil and Australia. These markets are increasing demand for vessel capacity for new project developments, step-up activity at existing projects and marginal field developments. This is expected to drive utilisation and charter rates of OSVs in these regions, but notably the impact will differ between markets due to differences in vessel classes and the nature of services provided.

High-end specialised vessels to benefit as we move deeper In recent years, we have seen a continuing trend of oil and gas companies moving into deeper waters (Brazil, West Africa) and more remote areas (Arctic) in their search for oil and gas. As oil companies target deeper and more demanding (harsh environment) regions for their E&P activities, we expect an increase in demand for larger and more technologically advanced offshore support vessels. The accelerating shift from shallow waters to deepwater thus yields favourable market dynamics for owners of modern and high-end offshore support vessels. We believe that continuing growth in demand for high-end specialised vessels will support these vessels and upcoming supply. We also expect relatively higher demand for specialised vessels, as opposed to multipurpose large vessels, which require higher rates to earn decent returns.

Brazil to absorb tonnage internationally on top of its newbuild plan With Brazil’s major discoveries, potential oil and gas reserves offshore Brazil (particularly in more complex deepwater pre-salt basins) are now recognised as some of the largest in the world. Going forward, Brazil is expected be the fastest growing market for deepwater activity. Petrobras has announced a massive newbuild OSV plan, potentially adding 146 OSVs to support its planned E&P activities. The units are expected to be built locally. Also, we



17.10.2011

expect Petrobras to absorb tonnage internationally to meet its offshore exploration and development activities.

North Sea spot rates and utilisation AHTS

0%

20%

40%

60%

80%

100%

120%

Dec-

07

Jan-0

8Feb-0

8M

ar-

08

Apr-

08

May-0

8Ju

n-0

8Ju

l-08

Aug-0

8Aug-0

8Sep-0

8O

ct-0

8N

ov-0

8D

ec-

08

Jan-0

9M

ar-

09

Apr-

09

May-0

9Ju

l-09

Aug-0

9Sep-0

9N

ov-0

9D

ec-

09

Feb-1

0M

ar-

10

Apr-

10

Jun-1

0Ju

l-10

Sep-1

0O

ct-1

0D

ec-

10

Jan-1

1M

ar-

11

Apr-

11

Jun-1

1Ju

l-11

Sep-1

1

Utiliza

tion

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

Rate

s (G

BP/D

ay)

Utilization (Lag 3 days) Rates

PSV

0%

20%

40%

60%

80%

100%

120%

Dec-

07

Jan-0

8Feb

-08

Mar-

08

Apr-

08

May

-08

Jun-0

8Ju

l-08

Aug

-08

Aug

-08

Sep

-08

Oct

-08

Nov-0

8D

ec-

08

Jan-0

9M

ar-

09

Apr-

09

May

-09

Jul-

09

Aug

-09

Sep

-09

Nov-0

9D

ec-

09

Feb

-10

Mar-

10

Apr-

10

Jun-1

0Ju

l-10

Sep

-10

Oct

-10

Dec-

10

Jan-1

1M

ar-

11

Apr-

11

Jun-1

1Ju

l-11

Sep

-11

Utiliza

tion

0

5000

10000

15000

20000

25000

30000

35000

40000

Rate

s (G

BP/D

ay)

Utilization (Lag 3 days) Rates

Source: Hagland, DnB NOR Markets

Spot rates – AHTS

AHTS 18k+ bhp

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

Jan

Feb

Mar

Apri

l

May

June

July

Aug

Sep

GB

P/

day

2007 (average rates) 2010 (average rates) 2011

AHTS 13-18k bhp

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

Jan

Feb

Mar

Apri

l

May

June

July

Aug

Sep

GB

P/

day


Source: Clarksons, DnB NOR Markets

Spot rates – PSV

PSV <3,000dwt

0

5,000

10,000

15,000

20,000

25,000

30,000

Jan

Feb

Mar

Apri

l

May

June

July

Aug

Sep

GB

P/

day


PSV >4,000dwt

0

5,000

10,000

15,000

20,000

25,000

30,000

Jan

Feb

Mar

Apri

l

May

June

July

Aug

Sep

GB

P/

day


Source: Clarksons, DnB NOR Markets



17.10.2011

International dayrates (spot + term fixtures)

AHTS 3000-5999BHP AHTS 6000-9999BHP AHTS 10000-14999 AHTS 15000-17999 AHTS >17999 PSV 2000-2999DWT PSV 3000-3999DWT PSV >4000DWTHigh Low High Low High Low High Low High Low High Low High Low High Low

Jan-11 - - 22,000 14,500 - - 28,000 28,000 - - - - 27,000 22,500 - - Feb-11 - - 22,000 14,500 - - 28,000 28,000 - - - - 27,000 22,500 - - Mar-11 - - 22,000 14,500 - - 28,000 28,000 - - - - 27,000 22,500 - - Apr-11 - - 22,000 14,500 - - 28,000 28,000 - - - - 27,000 22,500 - -

May-11 - - 22,000 15,500 - - 28,000 28,000 - - - - 27,000 19,575 - - Jun-11 - - 22,000 15,500 - - 28,000 28,000 - - - - 27,000 19,366 - - Jul-11 - - 22,000 15,500 - - 28,000 28,000 - - - - - - - -

Aug-11 - - 22,000 15,700 - - 28,000 28,000 - - - - - - - - Sep-11 - - 22,000 15,500 - - 30,000 28,000 40,000 40,000 - - - - - - Oct-11 - - 22,000 15,500 - - 30,000 28,000 40,000 40,000 - - - - - -


Jan-11 - - - - 50,000 40,000 65,000 65,000 85,000 85,000 28,000 4,200 60,000 22,000 34,000 20,000 Feb-11 - - - - 50,000 40,000 65,000 65,000 85,000 85,000 25,596 4,200 34,000 12,000 34,000 20,000 Mar-11 - - - - 50,000 40,000 - - 85,000 85,000 25,596 4,200 34,000 11,000 34,000 20,000 Apr-11 - - - - - - - - 85,000 85,000 25,596 4,200 34,000 11,000 34,000 25,000

May-11 - - - - - - - - 85,000 85,000 25,596 5,100 34,000 11,000 34,000 25,000 Jun-11 4,250 4,200 - - - - - - 85,000 85,000 21,500 5,100 34,000 11,000 34,000 25,000 Jul-11 4,250 4,200 - - - - - - 85,000 85,000 25,163 5,100 34,000 11,000 34,000 25,000

Aug-11 - - - - - - - - 85,000 85,000 25,163 5,100 34,000 11,000 34,000 25,000 Sep-11 - - - - - - 75,000 65,000 85,000 85,000 25,163 5,100 34,000 19,000 34,000 25,000 Oct-11 - - - - - - 85,000 65,000 85,000 85,000 25,163 5,100 34,000 21,000 34,000 27,000


Jan-11 - - 26,000 9,600 40,000 12,000 46,000 27,000 68,000 45,000 - - 23,000 11,000 - - Feb-11 - - 26,000 9,600 40,000 12,000 46,000 27,000 68,000 45,000 - - 23,000 11,000 - - Mar-11 12,500 7,000 26,000 9,600 40,000 12,000 46,000 27,000 68,000 45,000 - - 23,000 11,000 - - Apr-11 12,500 7,000 26,000 9,600 40,000 12,000 46,000 27,000 68,000 45,000 - - 23,000 11,000 - -

May-11 12,500 7,000 26,000 9,600 40,000 12,000 46,000 27,000 68,000 29,000 - - 23,000 11,000 - - Jun-11 12,500 6,700 26,000 9,600 40,000 14,950 46,000 38,500 68,000 29,000 - - 23,000 11,000 - - Jul-11 12,500 6,600 26,000 9,600 40,000 14,950 46,000 38,500 53,000 29,000 - - 23,000 11,000 - -

Aug-11 14,000 6,600 26,000 9,000 40,000 10,750 46,000 27,300 53,000 29,000 - - 23,000 11,000 - - Sep-11 14,000 6,600 26,000 9,000 40,000 10,750 46,000 27,300 53,000 29,000 - - 23,000 11,000 - - Oct-11 14,000 6,600 26,000 9,000 40,000 10,750 46,000 27,300 53,000 45,000 - - 23,000 11,000 - -

West Africa (USD)

Gulf of Mexico (USD)

South East Asia (USD)

Source: ODS Petrodata, DnB NOR Markets

Share price performance Although the share prices have recovered somewhat over the past two weeks, we argue that the general underperformance of Asia’s offshore companies is unjustifiable and most have still been overly punished. On average, Asian players (offshore support services, excluding Malaysian names) are down 34% YTD, significantly underperforming the US Oil Service index’s -15%, Norwegian supply peers’ -27% and the general market’s -14%.

The offshore oil service markets in Asia have not functioned much differently from the international markets in terms of activity and growth potential. In fact, we continue to like the Asian markets due to the nature of protectionism in some regions (dominated by NOCs), which require players to have the relationships and networks to operate.

The larger Singapore-listed yards (Keppel, Sembcorp Marine and STX OSV), have not been spared, and are down 15% on average, driven by market expectations of weaker ordering momentum. Likewise, Korean yards are down 30% YTD on stronger outflow in the Korean domestic market.

Performance YTD • Singapore offshore support services players: -34%. • Singapore yards (larger cap): KEP -15% and SMM -28%. • STX OSV: -2%. • Korean yards (HHI, SHI, DSME): -30%. • OSX Index: -15%. • Norwegian players: -27%. • Global supply players: Tidewater -14% and Bourbon -42%. • Malaysia names: SCRES +25% and KEPB +5%. • Singapore benchmark STI: -14%.



17.10.2011

Share price performance of OSV players

50

100

150

200

250

300

Jan-0

9

Mar

-09

May

-09

Jul-09

Sep

-09

Nov

-09

Jan-1

0

Mar

-10

May

-10

Jul-10

Sep

-10

Nov

-10

Jan-1

1

Mar

-11

May

-11

Jul-11

Sep

-11

Rebase

d in

dex f

rom

Jan

09

Singapore players Norwegian players Other players (TDW & GBB)

OSX INDEX FSSTI Index

Source: Bloomberg data as of 14 Oct 2011

Share price performance of large-cap yards

50

100

150

200

250

300

350

400

Jan-0

9

Feb-0

9

Mar

-09

Apr-

09

May

-09

Jun-0

9

Jul-09

Aug-0

9

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-1

0

Feb-1

0

Mar

-10

Apr-

10

May

-10

Jun-1

0

Jul-10

Aug-1

0

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-1

1

Feb-1

1

Mar

-11

Apr-

11

May

-11

Jun-1

1

Jul-11

Aug-1

1

Sep

-11

Oct

-11

Rebase

d in

dex f

rom

Jan

0

9

FSSTI Index KOSPI Index Keppel SMM STX OSV SHI DSME HHI

Source: Bloomberg data as of 14 Oct 2011



17.10.2011

Performance – 52-weeks high, low, YTD, since August

Company Listed Rec Currency TPCurrent

price UpsidePerf from 52 weeks high

Perf from 52 weeks low Perf ytd

Market cap at 29 July (USDm)

Market cap current (USDm)

Difference (Aug-Oct) USDm

Difference (Aug-Oct) in %

Swiber Singapore BUY SGD 1.00 0.57 77% -49% 28% -44% 293 220 -73

-25%Ezra Singapore BUY SGD 1.20 0.97 24% -48% 29% -46% 829 588 -241

-29%Otto Marine Singapore SELL SGD 0.12 0.14 -14% -65% 8% -60% 305 203 -102

-33%ASL Marine Singapore BUY SGD 0.85 0.53 62% -31% 27% -30% 212 170 -42

-20%CH Offshore Singapore BUY SGD 0.65 0.40 65% -31% 20% -20% 243 214 -30

-12%Ezion Singapore BUY SGD 0.90 0.53 70% -30% 43% -25% 406 290 -116

-29%KS Energy Singapore BUY SGD 1.22 0.99 23% -17% 30% -8% 371 320 -51

-14%Jaya Singapore BUY SGD 0.90 0.45 100% -41% 7% -38% 361 266 -96

-26%Kencana Malaysia Under review MYR 2.15 2.54 -15% -15% 49% 5% 1,826 1,465 -361

-20%SapuraCrest Malaysia Under review MYR 3.00 3.90 -23% -15% 68% 26% 1,918 1,563 -355

-19%EOC Norway HOLD NOK 7.0 6.20 13% -27% 17% -26% 150 117 -32

-22%Kreuz Singapore BUY SGD 0.45 0.33 38% -37% 18% -26% 162 126 -36

-22%STX OSV Singapore BUY SGD 1.9 1.12 70% -29% 43% -2% 1,505 1,013 -491

-33%SembMarine Singapore BUY SGD 4.7 3.86 22% -34% 27% -28% 9,309 6,141 -3,167

-34%Keppel Singapore BUY SGD 10.0 8.70 15% -29% 24% -15% 16,370 11,874 -4,496 -27%

34,261 24,571 -9,689 -28% Source: DnB NOR Markets, Bloomberg data as of 14 Oct 2011

Funds with firepower when sentiment improves Due to loss aversion, many investors are overweight cash to position them for potential redemptions. We believe that funds’ cash-holding could trigger a spike in buying should sentiment recover, but volatility in share prices can also be expected if this cash is not re-invested.

Relative valuation of offshore support players The recent sell-down has caused a substantial compression of multiples, which we believe is unwarranted given the industry’s fundamentals. Below is an overview of the relative multiples analysis in our Asian coverage.

Relative valuation – trading multiples

Company Rec Currency TP Price Upside NAV P/NAV 2011E 2012E 2013E 2011E 2012E 2013ESwiber Singapore 226 BUY SGD 1.00 0.57 77% 0.97 SGD 0.58 6.8 3.8 4.9 8.7 5.4 5.1Ezra Singapore 604 BUY SGD 1.20 0.97 24% 1.32 SGD 0.73 16.6 8.2 5.9 19.5 12.7 7.9Otto Marine Singapore 208 SELL SGD 0.12 0.14 -14% 0.14 SGD 0.99 - 12.9 12.3 - 20.4 20.1ASL Marine Singapore 174 BUY SGD 0.85 0.53 62% 0.89 SGD 0.59 6.9 4.6 4.0 5.3 3.6 2.6CH Offshore Singapore 219 BUY SGD 0.65 0.40 65% 0.66 SGD 0.60 6.5 6.1 5.5 4.1 3.0 1.9Ezion Singapore 315 BUY SGD 0.90 0.53 70% 0.94 SGD 0.57 4.9 4.5 3.7 4.7 4.5 2.8KS Energy Singapore 317 BUY SGD 1.22 0.99 23% 1.22 SGD 0.81 - 8.1 6.5 10.3 4.9 6.0Jaya Singapore 273 BUY SGD 0.90 0.45 100% 0.94 SGD 0.48 4.1 9.1 3.4 7.4 6.8 3.2Kencana Malaysia 1571 Under review MYR 2.15 2.54 -15% 1.91 MYR 1.33 20.9 23.4 21.7 15.0 13.3 11.7SapuraCrest Malaysia 1677 Under review MYR 3.00 3.90 -23% 2.88 MYR 1.35 20.3 13.3 10.2 10.3 7.2 5.9EOC Norway 122 HOLD NOK 7.0 6.2 13% 6.81 NOK 0.91 5.8 2.8 4.5 6.0 4.6 5.9Kreuz Singapore 130 BUY SGD 0.45 0.33 38% 0.46 SGD 0.71 4.1 4.8 4.7 3.2 2.9 2.3Average Asia offshore services players 0.80 9.7 8.5 7.3 8.6 7.4 6.3

Company Rec Currency TP Price Upside NAV P/NAV 2011E 2012E 2013E 2011E 2012E 2013EKeppel Singapore 12196 BUY SGD 10.00 8.70 15% 10.14 SGD 0.86 11.7 12.5 12.3 8.1 8.3 7.5Sembcorp Marine Singapore 6293 BUY SGD 4.70 3.86 22% 4.66 SGD 0.83 12.0 12.0 12.1 5.9 5.3 4.9STX OSV Singapore 1041 BUY SGD 1.90 1.12 70% 1.86 SGD 0.60 5.0 5.8 6.3 2.4 2.7 2.6Samsung Heavy InKorea 6884 Not rated KRW NO REC 29500 NA NA NA NA 7.1 7.8 6.8 4.9 5.6 5.1Daewoo ShipbuildinKorea 4687 Not rated KRW NO REC 26000 NA NA NA NA 5.9 7.1 5.9 5.5 6.9 6.2Hyundai Heavy IndKorea 22413 Not rated KRW NO REC 300500 NA NA NA NA 6.1 6.3 5.6 6.1 6.2 5.7Average Asia yards 8.0 8.6 8.2 5.5 5.8 5.3

EV/EBITDA

Country listed

Market cap (USDm)

P/E EV/EBITDA

Country listed

Market cap (USDm)

P/E

Source: DnB NOR Markets, Consensus estimates from Bloomberg for the Korean yards not under coverage as of 14 Oct 2011



17.10.2011

Trough valuation – understanding downside exposure Below we show potential trough share prices that could be reached based on our 2012e EPS and trough forward P/E, recorded during the previous down-cycle between 2008 and 2009. For companies that were not listed at that time, we have used the latest trough multiples available.

Trough valuation – potential downside exposure

CompanyCountry listed

Market cap

(USDm) Rec Currency TP Price UpsideFY2012e

EPSEPS

CurrencyTrough fwd

P/EImplied trough

share price% change to

troughSwiber Singapore 226 BUY SGD 1.00 0.57 77% 0.12 USD 2.77 0.42 -25%Ezra Singapore 604 BUY SGD 1.20 0.97 24% 0.09 USD 1.32 0.16 -83%Otto Marine Singapore 208 SELL SGD 0.12 0.14 -14% 0.01 SGD 6.61 0.07 -49%ASL Marine Singapore 174 BUY SGD 0.85 0.53 62% 0.11 SGD 5.05 0.57 9%CH Offshore Singapore 219 BUY SGD 0.65 0.40 65% 0.05 USD 4.20 0.28 -30%Ezion Singapore 315 BUY SGD 0.90 0.53 70% 0.12 SGD 5.06 0.60 13%KS Energy Singapore 317 BUY SGD 1.22 0.99 23% 0.12 SGD 3.97 0.48 -51%Jaya Singapore 273 BUY SGD 0.90 0.45 100% 0.05 SGD 1.84 0.09 -80%EOC Norway 122 HOLD NOK 7.0 6.2 13% 0.40 USD 1.42 3.29 -47%Kreuz Singapore 130 BUY SGD 0.45 0.33 38% 0.05 USD 3.74 0.26 -20%Average Asia offshore services players 3.60

Company Rec Currency TP Price UpsideFY2012e

EPSTrough fwd

P/EImplied trough

share price% change to

troughKeppel Singapore 12196 BUY SGD 10.00 8.70 15% 0.70 SGD 5.11 3.5 -59%Sembcorp Marine Singapore 6293 BUY SGD 4.70 3.86 22% 0.32 SGD 6.17 2.0 -49%STX OSV Singapore 1041 BUY SGD 1.90 1.12 70% 0.86 NOK 4.01 0.8 -32%Average Asia yards 5.10 4.0

Country listed

Market cap

(USDm)

Source: DnB NOR Markets, 2012e EPS based on our estimates, Trough fwd P/E from Bloomberg during 2008–2011

Note: We have not adjusted one-off items in the earnings between 2008-2011, which could explained the low trough multiple of some of the companies, such as Ezra (which had a USD0.25 EPS, out of USD0.30, associated with one-off gains from listing of EOC)

Note: Jaya’s FY2012e EPS is significant lower than normalised level, due to the reshuffling of vessel sales assumptions to FY2013/FY2014e

Corporate balance sheet is stronger today The offshore cycle took a deep dive in 2009, in line with the global financial crisis. However, given that the downturn lasted for a relatively short period of time, with recovery mode kicking in within two years in 2010, most vessel owners went through the crisis relatively unscathed, which accounts for the lack of distressed opportunities in the market.

Some vessel owners and yards have also built up a relatively strong balance sheet (see table below), supported by the supernormal contracts fixed during the good times. Hence, we believe most of them have the balance sheet strength to ride through current macro uncertainty. In our view, the stronger companies include Keppel, SMM, and STX OSV, with relatively low gearing and capex commitments. We also believe these cash-rich companies would be able to initiate share buybacks and dividends in the event of further weakness in their share prices.

We believe companies that would likely to require additional funding include Otto Marine, Ezra and Swiber, which have relatively high gearing and outstanding capex according to our estimates.



17.10.2011

Balance sheet strength

CompanyCountry listed Currency Net debt LT debt ST debt Cash Capex

Primary operating

cashflow, excl WC changes

Short-term liquidity flow (excl WC

changes, financing activities, equity

raising)

Swiber Singapore USD 315 307 147 138 204 70 -143

Ezra Singapore USD 391 446 132 187 403 52 -295

Otto Marine Singapore SGD 451 310 323 182 215 -12 -369

ASL Marine Singapore SGD 174 156 68 50 37 82 26

CH Offshore Singapore USD -43 0 0 18 9 53 62

Ezion Singapore SGD 71 75 93 98 104 94 -6

KS Energy Singapore SGD 271 195 111 35 78 50 -105

Jaya Singapore SGD 88 304 14 231 195 65 86

Kencana Malaysia MYR 60 556 332 828 600 175 71

SapuraCrest Malaysia MYR -173 405 298 876 279 492 791

EOC Norway USD 311 302 90 81 25 46 12

Kreuz Singapore USD 22 23 11 11 4 35 32

STX OSV Singapore NOK -2,541 266 44 2,851 410 1,348 3,745

SembMarine Singapore SGD -2,907 0 8 2,915 164 1,208 3,951

Keppel Singapore SGD -178 3,676 392 4,246 873 1,476 4,458

DnB Forecast for current FYLatest reported financial year

Source: DnB NOR Markets, short-term liquidity is calculated using cash + operating cash flow(before working capital changes) – capex – ST debt (before refinancing)

Expect consolidation in the market, M&A opportunities We expect consolidation to continue in the OSV market. In Asia, vessel owners are fragmented, comprising small players with a limited number of vessels. In order to enhance the competitive advantage of getting into chartering tenders and fleet optimisation, a sizeable fleet is needed. Hence, we expect another phase of consolidation in the market. Companies built up cash piles in the last cycle. Backed by high growth potential and relatively more protected offshore markets in Asia, we believe that a select number of Asian companies are good targets for companies in the US and Europe. In our view, some companies at their current price offer good opportunities for market expansion and make sense synergistically as takeover targets, bringing to the table existing client bases in Asia. For some companies whose shares are trading at a discount to their NAV, the acquirers could get the assets (vessels) at attractive prices. Companies that have a relatively strong cash position and low net debt (i.e. the ability to gear up) are typically in a better position to target or fend off acquisitions.

Financing issue – funding Following discussions with our corporate banking team, we believe the funding situation is getting tighter. Costs in the funding market are increasing due to the challenging USD funding situation. This is of greater significance in the offshore loan market, as most funding is in USD. The current market turmoil has also reduced the availability of liquidity from some banks in Europe. We are not able to quantify the financial impact on the offshore industry due to limited data flow, but in our view this inevitably slows investment decisions and puts pressure on capital funding.

In terms of the impact on Asian yards, we believe the funding situation will result in a slowdown in ordering momentum. We understand that for current new order enquiries, yards are negotiating for progressive payments. We believe it will be more challenging to get funding for new projects on a progressive payment structure, as banks would prefer to finance the remaining unfunded portion of newbuilds already under construction, which come with more attractive pricing and are closer to delivery.

However, we believe the situation is different from 2008 financial crisis, as some of the more aggressive banks have left the sector post 2008 crisis, leaving mainly relationship banks funding the sector. These banks adopt a long-term view and would most likely remain committed to the market.



17.10.2011

Reporting quarter Q3 2011 (Sep-end): Ezion, Swiber, KS, Otto Marine, Kreuz, STX OSV, SMM, and Keppel Reporting quarter Q1 FY2012 (Sep-end): ASL, Jaya, and CHO Reporting quarter Q4 FY2011 (Aug-end): Ezra and EOC Reporting quarter Q3 FY2012 (Oct-end): SapuraCrest Reporting quarter Q1 FY2012 (Oct-end): Kencana

Company specifics – quarterly preview focus Based on current macro weakness, we believe most investors would not put too much emphasis on the upcoming quarterly earnings. Hence, we do not think the upcoming earnings release would be major price events for most companies, unless actual earnings deviate significantly from expectations. Focus would rather be on the sustainability of earnings and cash flow.

In this report, apart from the quarterly previews, we have turned our focus on the long-term fundamentals of the companies, which we hope can assist investors to make an informed decision in their investment making process.

For most of small-cap companies, we need a price trigger event to close the divergence between fundamentals and the share prices. For now, the major deterrence to investing in them is liquidity and risk-reward is more attractive among the larger cap companies, given how much they have corrected.



17.10.2011

ASL Marine (BUY, TP SGD0.85) Low-risk exposure to Indonesia coal transportation industry ASL Marine offers vertically integrated marine services, engaging in shipbuilding, ship repair and ship chartering. Customers are mainly in Asia Pacific and South Asia. In shipbuilding and ship repair, it owns and operates three shipyards (in Singapore, Indonesia and China), with its key capabilities in Indonesia. In ship chartering, it plans to grow its fleet to 225 vessels (mostly tugs and barges) by 2012. The outlook for the Indonesia coal transportation market remains positive, due to the cabotage ruling where only Indonesian-flagged vessels are allowed to operate in this coal-rich country. This cabotage story is a long-term trigger and we consider ASL to be one of better-positioned players in the coal transportation market.

Divisions • Fleet (ship chartering) (NAV SGD0.91 per share). Owns an existing

fleet of 212 vessels, mainly tugs and barges. It plans to increase the fleet to 225 by 2012.

• Yards (shipbuilding and ship repair) (NAV SGD0.23 per share). Owns and operates three shipyards, in Singapore, Indonesia (Batam) and China (Guangdong). It focuses and specialises in building small, niche vessels. It has a strong track record in building tugs, barges, offshore support vessels (OSVs), work dredger vessels and tankers. The current order book is estimated at SGD265m (see below for details).

Assets • 212 vessels, mainly tugs and barges (see fleet list). • Newbuilds of 13 larger vessels, worth SGD101m, to be added to the

existing fleet. Of these 13, nine (worth SGD98m) are being built internally and we believe comprise 1x pipelay barge, 1x ROV support vessel, 1x 5,000bhp AHTS, 1x 5,000bhp AHT, and 5x tugs.

• Three shipyards – in Singapore, Batam and China.

Recent developments • Yard expansion – addition of two graving docks. • In early October, ASL announced new shipbuilding contracts worth

SGD267m for the construction of five vessels: 2x PSVs, 1x dredger, and 2x barges. On top of this, it also announced SGD159m (USD130m) of shipbuilding contracts (2x emergency stand-by vessels, 9x small-size AHTS, 1x offtake support and supply vessel, 1x work barge) in July.

Expected newsflow • Potential new chartering contracts in the region, with increasing enquiries

from ship-owners. • Further reflagging of tugs and barges to Indonesian flags, targeting the

local coal transportation market, which is protected by cabotage rules. • Potential newbuild and conversions orders from Indonesia, due to the

cabotage laws. • Q1 FY2012 earnings release expected in November.

Valuation Our NAV is SGD0.89 per share. The shares are trading on an EV/EBITDA of 3.6x for 2012e, and a P/E of 4.5x for 2012e. We continue to like ASL for its exposure to the offshore coal transportation market in Indonesia. We reiterate our BUY recommendation and SGD0.85 target price.



17.10.2011

Q1 2011/12 preview (September year-end) ASL Marine is expected to report its Q1 2011/12 results in mid-November.

Earnings estimates We forecast Q1 revenues of SGD102m, EBITDA of SGD21m, EBIT of SGD13m, net income of SGD8m, and EPS of SGD0.02. No quarterly consensus is available, but our full-year operating income estimates are above consensus. • We expect relatively stable shipbuilding revenues of SGD52m (51% of

total Q1 revenues) and EBITDA of SGD6m (29% of total Q1 EBITDA), as we expect recent new order wins of SGD426m to recognise income from Q2 onwards, due to the construction schedule.

• For chartering, we expect revenues of SGD20m and EBITDA of SGD8m, driven by utilisation of its 119 barges (c61% versus Q4’s c55%), 64 tugs (c55% versus Q4’s c50%) and fleet of six small handling supply tugs (c76% versus Q4’s c70%).

Healthy yard activity seen during last yard visit in July As mentioned post our yard visit in July, activity was brisk at ASL’s Batam yard (steel cutting, blasting, fabrication engineering, heavy structure assembly, repairs). Its repair berths (we forecast ship repair and conversion Q1 revenues of SGD30m and EBITDA of SGD7m) were operating at close to full capacity, in line with the commercial shipping peak season.

Q1 2011/12 preview SGDm Q4/11 Q1/12e Q1/12e Chg y/y % Chg

Reported DnB NOR Cons* 2012E 2013E 2014E 2012E 2013E 2014E

Operating revenues 92.6 101.9 na 9.3 10% 507 525 484 380 384 433EBITDA 20.2 21.4 na 1.3 6% 103 111 105 84 90 95EBITDA margin 22% 21%EBIT 10.1 12.6 na 2.5 24% 66 74 68 50 51 54Net f inance -2.7 -2.4 na 0.3 n.m -10 -9 -8 - - -Pretax earnings before one-off 7.5 10.2 na 2.7 36% 58 67 0 40 43 47Net result 5.8 8.4 na 2.6 45% 48 55 0 34 35 44

EPS 0.014 0.020 na 0.0 45% 0.11 0.13 0.12 0.08 0.09 0.10

Full-year figures (DnB NOR) Full-year figures (consensus)

Source: DnB NOR Markets, company

Segment estimates Revenue breakdown Q1/11 Q2/11 Q3/11 Q4/11 2011 Q1/12e Q2/12e Q3/12e Q4/12E 2012E 2013E 2014EShipbuilding 49 54 56 58 216 52 71 89 92 304 306 262Shiprepair and other marine related services 17 32 15 17 82 30 25 26 33 113 116 117Charter and rental income 15 18 15 18 66 20 22 23 25 90 103 105

EBITDA breakdownShipbuilding 6 6 5 7 23 6 8 11 11 36 36 31Shiprepair and other marine related services 3 6 2 4 16 7 5 6 8 26 26 24Charter and rental income 8 9 9 9 35 8 10 11 12 41 48 51

EBIT breakdownShipbuilding 3 3 2 3 11 3 5 7 8 24 24 18Shiprepair and other marine related services 3 6 2 4 14 6 5 5 7 23 24 21Charter and rental income 3 4 3 4 14 3 4 5 7 20 27 29 Source: DnB NOR Markets, company Note: Figures adjusted for SG&A expenses and other operating expenses

Shipbuilding order book The current order book of SGD577m is expected to provide revenues and earnings visibility up to Q1 2013/14e.



17.10.2011

Current shipbuilding backlog

ASL Shipbuilding Orderbook (units) In unitsOutstanding

values (SGDm)Tugs 8 67

Azimuth Stern Drive Tugs - -Rotor Tugs - -

Barges 7 80OSV - -

AHT - -AHTS 12 240Offshore Construction Vessel - -Offtake Support and Supply Vessel 1 23Emergency Response & Rescue Vessels 2 18Diving support vessel 1 30

Dredgers 3 119Others - tankers 0 0Total 29 577 Source: Company, DnB NOR Markets Note: Some unit breakdowns are based on our assumptions

New order momentum going strong In early October, ASL announced new shipbuilding contracts worth SGD267m for the construction of five vessels: 2x PSVs, 1x dredger, and 2x barges. On top of this, it announced SGD159m (USD130m) of shipbuilding contracts (2x emergency stand-by vessels, 9x small-size AHTS, 1x offtake support and supply vessel, 1x work barge) in Q4 2010/11. ASL has outperformed peers in the region in terms of order intake YTD (calendar).

New order estimate revisions; pace far exceeding expectations The pace of new orders has already exceeded our 2011/12 forecast of SGD247m, as we expected slower ordering momentum in the current weak macro market. As a result, we have raised our new order estimates and earnings estimates (see below).

New order estimate revisions New assumptionsIn SGDm FY2006 FY2007FY2008 FY2009 FY2010 FY2011* FY2012 YTD FY2012E FY2013E FY2014ENewbuild orders** (historical and secured) 250 467 315 100 39 260 267 267 na naOffshore support and specialised vessels na na na na na -39 117 153 72 108Tugs na na na na na 23 20 50 50Dredgers na na na na na 40 77 77 30 60Others - Tankers/ barges na na na na na -4 73 106 45 60Conversions (under Shiprepair segment) na na na na na 30 60 60 90Total full-year estimated orders (incl conversions) 255 416 257 368

Initial assumptionsIn SGDm FY2006 FY2007FY2008 FY2009 FY2010 FY2011* FY2012E FY2013E FY2014ENewbuild orders** (historical and secured) 250 467 315 100 39 260 267 na naOffshore support and specialised vessels na na na na na -39 72 72 108Tugs na na na na na 23 40 50 50Dredgers na na na na na 40 30 30 60Others - Tankers/ barges na na na na na -4 45 45 45Conversions (under Shiprepair segment) na na na na na 30 60 60 90Total full-year estimated orders (incl conversions) 255 247 257 353 Source: Company, DnB NOR Markets Note: *As mentioned previously, we include the SGD131m of orders secured in July 2011 in 2010/11 Note: **Derived using reported closing order book + revenues reported – the reported opening order book

Estimate revisions SGDmn

2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E 2012E 2013E 2014E

Operating revenues 507 525 484 476 460 450 30 65 34 380 384 433EBITDA 103 111 105 99 103 101 3 8 4 84 90 95EBITDA margin 20% 21% 22% 21% 22% 22% -1% -1% -1% 22% 23% 22%EBIT 66 74 68 63 67 64 3 8 4 50 51 54Net f inance -10 -9 -8 -10 -9 -8 0 0 0 - - -Pretax earnings before one-off 58 67 61 54 59 0 3 8 61 40 43 47Net result 48 55 51 45 49 0 3 6 51 34 35 44

EPS 0.11 0.13 0.12 0.11 0.12 0.11 0.01 0.01 0.01 0.08 0.09 0.10EPS change % 6% 13% 7%

ChangeNew estimates Old estimates Consensus

Source: DnB NOR Markets, Bloomberg consensus as of 12 October



17.10.2011

Valuation and recommendation The long-term fundamentals of ASL’s chartering business remain positive, with relatively good margins (2011/12e EBITDA margin 39%), riding on healthy demand for its tug and barge fleet in the Indonesian coal transportation market. For shipbuilding, new order flow is still the key driver, and new order flow has so far exceeded our expectation, with SGD267m of new shipbuilding contracts secured in October. This supports our view that offshore activity remains robust and ASL is well positioned for new orders, due to its: 1) stable and established management, with strong client and supplier relationships; 2) competitive pricing; and 3) good project execution and track record of meeting clients’ demands. The SGD577m shipbuilding order book is expected to provide revenue coverage in 2011/12e and 2012/13e, with margins (execution) the swing factor.

We have raised our NAV from SGD0.84 to SGD0.89 per share after revising our shipbuilding new order and earnings estimates. We value the yard business at an EV/EBITDA of 3x 2011/12e and 2012/13e. We reiterate our BUY recommendation and NAV-based target price of SGD0.85

Fleet NAV – SGD0.84/share

NAV Calculation

Fleet size

(unit) Avg size

Vessel avg age

Avg contract length (mths)

Value per

vessel (USDm)

X rate (USD/SGD)

Value per

vessel (SGDm)

Total value

(SGDm)

Total value/

sh (SGD)

% of total NAV

Fleet value of Tugs 64 2,000 bhp 4.0 3.0 1.5 1.27 1.9 122 0.29 33%Fleet value of Barges 119 300 x 250ft 4.0 3.0 0.8 1.27 1.0 124 0.29 33%Fleet value of OSV 6 5,000 bhp 1.5 3.0 15 1.27 18.4 110 0.26 30%Fleet value of Tanker 2 1,000 dwt 1.0 3.0 11.0 1.27 14.0 28 0.07 7%Fleet value of tugs and barges (Koon) 21 - - - 0.4 1.27 0.4 9 0.02 2%Total fleet value - - - - - - - 384 0.91 103%NAV of yards (3x average FY2012e and FY2013e EV/EBITDA) - 170,000 dwt - - - - - 122 0.29 33%Other financial assets - - - - - - - 22 0.05 6%Total asset values 212 - - - - - - 529 1.25 141%NIBD incl future capex (2012E) - - - - - - - 154 0.37 41%Equity value (SGDm) - - - - - - - 374 0.89 100%No of shares outstanding - - - - - - - 422 - -NAV per share 0.89 100% Source: DnB NOR Markets



17.10.2011

ASL MARINE (ASLM.SI)

PROFIT & LOSS SGDm 2009 2010 2011 2012e 2013e 2014eRevenues 435 468 363 507 525 484Other income 0 0 0 0 0 0Operating costs -338 -381 -289 -404 -414 -380EBITDA 98 88 74 103 111 105Depreciation & amortisation 27 30 36 37 37 37EBIT 71 57 38 66 74 68Associated companies 1 -1 -1 1 1 1Net interest -6 -8 -9 -10 -9 -8Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 66 48 29 58 67 61Tax 10 9 5 10 11 10Minority interest 3 2 1 0 0 0Net profit 71 37 32 48 55 51

BALANCE SHEET SGDmIntangible assets 0 0 0 0 0 0Operating assets 397 438 493 493 493 493Associated companies 7 6 5 5 5 5Other current assets 202 205 231 269 241 247Cash & cash equivalents 96 90 50 50 121 128Total assets 703 739 779 816 860 873Equity & minority interest 295 324 345 384 428 468Interest bearing debt 160 184 224 204 194 184Non interest bearing debt 247 230 210 229 238 220Total liabilities & equity 703 739 779 816 860 873Net interest bearing debt 64 94 174 154 73 56

CASH FLOW SGDmCash earnings 106 70 66 82 95 89Working capital 52 -21 -43 -16 34 -25Investments -170 -69 -91 -37 -37 -37Debt 24 24 40 -20 -10 -10Equity/dividends -12 -9 -6 -9 -11 -10Change in cash & liquids 0 -6 -34 0 71 7

VALUATION 2009 2010 2011 2012e 2013e 2014eEPS SGD 0.24 0.12 0.08 0.11 0.13 0.12EPS adj SGD 0.18 0.12 0.05 0.11 0.13 0.12Dividend ps SGD 0.04 0.03 0.02 0.02 0.03 0.02Book per share SGD 0.98 1.08 0.82 0.91 1.01 1.11Year end shares Millions 301.4 301.4 422.0 422.0 422.0 422.0Price SGD 0.60 0.59 0.61 0.52 0.52 0.52P/E X 2.5 4.8 8.1 4.5 3.9 4.3P/E adj X 3.4 4.7 11.3 4.5 3.9 4.3Dividend yield % 6.7 5.1 2.5 4.4 5.0 4.6P/Book X 0.6 0.6 0.7 0.6 0.5 0.5EV/EBITDA adj X 2.4 3.0 5.8 3.6 2.6 2.6EV/EBIT adj X 3.3 4.7 11.1 5.5 3.8 3.9EV/Cap employed X 0.5 0.5 0.8 0.6 0.5 0.4

Share price and targetPrice SGD 0.52Price target 12m SGD 0.85Recommendation BUYKey data per shareBook value SGD 0.82NAV SGD 0.89P/Book X 0.63P/NAV X 0.58EPS gr11-14e %cagr 30.6%Financial structureMarket cap. SGDm 217.3Net int. bear debt SGDm 174.4Enterprise value SGDm 391.7Shares outst. Millions 422.0Equity/tot assets % 47.0Share price performanceAbs. 1/3/12m 3/-16/-23Rel. 1/3/12m 3/-5/-9High/Low 12m SGD 1/0STI index 2734.030days volatility % 66Company attributesReuters ticker ASLM.SISupplySingapore

ReportingQ1 2012

ManagementCEO Ang Kok TianCFO Lilian TanAddressASL Marine19 Pandan Road, Singapore 609271

H.p.: www.aslmarine.comTel +65 6264 3833

Analyst: Kay Lim, CFA+65 6220 [email protected]



17.10.2011

6065707580859095

100105110115

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

ASL Marine

Rebased price (12m, SGD)

60

80

100

120

140

160

180

200

220

240


ASL Marine

Rebased consensus average forward EPS (12m, SGD)

0

100

200

300

400

500

600

2008 2009 2010 2011 2012e 2013e 2014e-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Revenue (SGDm) Revenue Growth

Revenue GrowthRevenue (SGDm)

0.00

0.05

0.10

0.15

0.20

0.25

2008 2009 2010 2011 2012e 2013e 2014e0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

0.045

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

20

40

60

80

100

120

2008 2009 2010 2011 2012e 2013e 2014e16.0%

17.0%

18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

EBITDA (SGDm) EBITDA margin

EBITDA marginEBITDA (SGDm)

-80-60-40-20

020406080

100120

2008 2009 2010 2011 2012e 2013e 2014e0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FCF (SGDm) Dividend yield

Dividend yieldFCF (SGDm)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2008 2009 2010 2011 2012e 2013e 2014e0%

5%

10%

15%

20%

25%

30%

35%

Price/Book ROE

ROEPrice/Book



17.10.2011

CH Offshore (BUY, TP SGD0.65) AHTS rates are key earnings driver CH Offshore (CHO) is an offshore support player, providing chartering services through its fleet of AHTS vessels to the offshore oil & gas industry. It has a business presence in South East Asia, Australia and the Middle East. As a pure AHTS vessel owner, dayrates are the key earnings driver. Most of its vessels are on term charters (6–12 months), providing good earnings visibility over the next few quarters. We reiterate our BUY recommendation and SGD0.65 target price.

Divisions • Marine services. Charters and manages a fleet of AHTS, with an average

age of 4–5 years.

Assets • Fleet of 17x AHTS, with 7x mid-size 12,240bhp, 2x 4,800bhp, and 8x

5,000+bhp.

Fleet list Vessel name Type BHP Built Status Country Client Yard built OwnershipBeryl AHTS 4800 2005 Spot market Indonesia Spot China - Fujian Mawei 100%Amber AHTS 4800 2005 Operating Indonesia Total China - Fujian Mawei 100%Zircon AHTS 5000 2004 Operating Malaysia Shell Singapore - Keppel Singmarine 100%Jasper AHTS 5000 2004 Operating United Arab Emirates Adma-Opco Singapore - Keppel Singmarine 100%Temasek Seppingan AHTS 5400 2001 Operating Indonesia Chevron Singapore - Pan United 49%Temasek Attaka AHTS 5400 2001 Operating Indonesia Chevron Singapore - Pan United 49%Garnet AHTS 5400 2005 Operating United Arab Emirates Adma-Opco Malaysia - Piasau slipway 100%Topaz AHTS 5400 2005 Operating United Arab Emirates Adma-Opco Malaysia - Piasau slipway 100%Peridot AHTS 12240 2009 Operating Brazil Petrobras Japan - Universal 100%Aquamarine AHTS 12240 2010 Spot market Vietnam Spot Japan - Universal 100%Amethyst AHTS 12240 2008 Operating Venezuela PDVSA Japan - Universal Shipyards 100%Turquoise AHTS 12240 2008 Operating Venezuela PDVSA Japan - Keihin, Yokahama 100%Tourmaline AHTS 12240 2007 Operating Australia Esso Japan - Universal Shipyards 100%Coral AHTS 12240 2008 Operating Australia Esso Japan - Universal Shipyard 100%Pearl AHTS 12240 2008 Operating Singapore - Japan - Universal Shipyards 100%Co-owned with Scomi AHTS 5400 2002 Operating Malaysia - - 49%Co-owned with Scomi AHTS 5400 2002 Operating Malaysia - - 49% Source: ODS, DnB NOR Markets

Recent developments • Alongside the implementation of the Indonesian Azaz Cabotage regulation,

CH Offshore has extended its planned sale of vessels to its Indonesian JV, PT Bahtera Nusantara Indonesia. In March, it announced that it intended to sell one more AHTS of 12,240bhp (either the Tourmaline, the Coral, or the Peridot) to the entity, to continue its chartering activities in Indonesia. To date, it has sold two vessels to PT Bahtera Nusantara Indonesia, the Temasek Attaka and the Amber.

• Following the cancellation of the planned sale of the 12,240bhp AHTS, Pearl to PT Bahtera Nusantara Indonesia in January 2011, the company announced in February that it had secured a 1+6-year bareboat charter contract on Pearl with a third-party buyer. It is fixed at a dayrate of USD10,750 for the term of the contract and includes an option to purchase the vessel at USD16m at the end of the extended charter period.

Expected newsflow • 2011/12 results, which are due out in mid-November. • Update on the vessels set to move to the Indonesian entity, including: 1)

additional vessels for sale to the JV; and 2) news on whether the Indonesian partner, PT Bahtera Niaga Internasional, has secured contracts for the vessel intended for injection into the JV.

• Update on the vessels put to work in Australia. • Possible fleet expansion.

Valuation Our NAV is SGD0.66 per share. We reiterate our BUY recommendation and SGD0.65 target price.



17.10.2011

Q1 2011/12 preview (September end) CH Offshore is expected to report its Q1 2011/12 results in mid-November.

No major development expected We expect no major development in the Q3 report, as the majority of the fleet is backed by long-term charters. We expect Q1 revenues of USD15m, EBITDA of USD9m, EBIT of USD8m, and net income of USD8m.

Q1 2011/12 preview USDm Q4/11 Q1/12e Q1/12e Chg y/y % Chg

Reported DnB NOR Cons* 2012E 2013E 2014E

Operating revenues 13.4 15.0 na 1.7 12% 66 70 73EBITDA 9.7 9.4 na -0.4 -4% 43 47 50EBITDA margins 73% 62% 65% 67% 68%EBIT 7.8 7.6 na -0.2 -3% 33 38 40Net finance 0.0 0.0 na 0.0 - 0 0 0Pretax earnings 7.8 7.6 na -0.2 -3% 36 40 43One-off gain on vessel disposal 1.0 -Net result 9.0 7.6 na -1.4 -15% 36 40 43

EPS 0.013 0.011 na 0.0 -15% 0.051 0.057 0.060

Full-year figures (DnB NOR)


Dayrates are the key swing factor CHO is a pure AHTS player and dayrates (term+spot) are its key earnings driver. We believe dayrates will recover to USD1.47/bhp, from Q4 2010/11’s implied USD1.32/bhp, as we expect the return of docked vessels in Q1.

Strong cash position for fleet expansion and/or acquisitions With zero debt and Q4 cash of USD43m, CHO has the capacity to re-gear its balance sheet for fleet expansion and/or acquisitions. With vessel prices and activity expected to trend up, we see upside potential should CHO decide to expand its fleet now.

Potential M&A target As CHO is trading at a steep discount to NAV, we argue that it could be an attractive takeover target for players wanting pure exposure in their AHTS fleet. We believe the key obstacle would be key shareholder Falcon, which bought its 29% stake in CHO at the higher price of SGD0.7 in February 2010.



17.10.2011

Valuation and recommendation Our NAV is SGD0.66 per share. We reiterate our BUY recommendation and SGD0.65 target price.

Fleet NAV – SGD0.66 per share

Vessel name Type BHP Built Status Country Client Yard built OwnershipNAV

(USDm)Ex

rateNAV

(SGDm)Beryl AHTS 4800 2005 Spot market Indonesia Spot China - Fujian Mawei 100% 11 1.24 14Amber AHTS 4800 2005 Operating Indonesia Total China - Fujian Mawei 100% 10 1.24 12Zircon AHTS 5000 2004 Operating Malaysia Shell Singapore - Keppel Singmarine 100% 13 1.24 16Jasper AHTS 5000 2004 Operating United Arab Emirates Adma-Opco Singapore - Keppel Singmarine 100% 13 1.24 16Temasek Seppingan AHTS 5400 2001 Operating Indonesia Chevron Singapore - Pan United 49% 10 1.24 6Temasek Attaka AHTS 5400 2001 Operating Indonesia Chevron Singapore - Pan United 49% 10 1.24 6Garnet AHTS 5400 2005 Operating United Arab Emirates Adma-Opco Malaysia - Piasau slipway 100% 13 1.24 16Topaz AHTS 5400 2005 Operating United Arab Emirates Adma-Opco Malaysia - Piasau slipway 100% 13 1.24 16Peridot AHTS 12240 2009 Operating Brazil Petrobras Japan - Universal 100% 33 1.24 40Aquamarine AHTS 12240 2010 Spot market Vietnam Spot Japan - Universal 100% 35 1.24 43Amethyst AHTS 12240 2008 Operating Venezuela PDVSA Japan - Universal Shipyards 100% 35 1.24 43Turquoise AHTS 12240 2008 Operating Venezuela PDVSA Japan - Keihin, Yokahama 100% 35 1.24 43Tourmaline AHTS 12240 2007 Operating Australia Esso Japan - Universal Shipyards 100% 29 1.24 36Coral AHTS 12240 2008 Operating Australia Esso Japan - Universal Shipyard 100% 30 1.24 37Pearl AHTS 12240 2008 Operating Singapore - Japan - Universal Shipyards 100% 30 1.24 37Co-owned with Scomi AHTS 5400 2002 Operating Malaysia - - 49% 6 1.24 7Co-owned with Scomi AHTS 5400 2002 Operating Malaysia - - 49% 6 1.24 7

NAV Calculation SGDm Method 30NAV of own chartering fleet 382 Fair mkt value 32.5NAV of co-fleet 7 Fair mkt value, assuming 50% debt 29Total assets 389 91.52012E NIBD + future capex -77 91.5NAV of all assets 466 1No of outstanding shares 705 0Equity value per share (SGD) 0.66 Source: DnB NOR Markets



17.10.2011

CH OFFSHORE (CHOF.SI)

PROFIT & LOSS USDm 2009 2010 2011 2012e 2013e 2014eRevenues 69 63 59 66 70 73Other income 0 0 0 0 0 0Operating costs -18 -18 -19 -23 -23 -24EBITDA 50 45 39 43 47 50Depreciation & amortisation 6 8 9 9 9 9EBIT 44 37 30 33 38 40Associated companies 1 1 1 2 2 2Net interest 0 0 -1 0 0 0Other financial itemsExtraordinary items 0 0 0 0 1 2Pre-tax profit 45 37 30 36 41 45Tax 0 0 0 0 0 0Minority interest 0 0 0 0 0 0Net profit 56 37 34 36 40 43

BALANCE SHEET USDmIntangible assets 0 0 0 0 0 0Operating assets 168 196 175 175 175 175Associated companies 6 7 14 14 14 14Other current assets 9 31 22 27 29 30Cash & cash equivalents 19 18 43 75 114 156Total assets 203 253 253 290 331 374Equity & minority interest 187 217 238 274 314 357Interest bearing debt 3 24 0 0 0 0Non interest bearing debt 12 12 15 16 17 18Total liabilities & equity 203 253 253 290 331 374Net interest bearing debt -16 5 -43 -75 -114 -156

CASH FLOW USDmCash earnings 52 44 41 53 42 53Working capital 8 -21 14 -12 6 -2Investments -42 -37 6 -9 -9 -9Debt -4 21 -24 0 0 0Equity/dividends 10 8 12 0 0 0Change in cash & liquids 24 15 49 32 39 42

VALUATION 2009 2010 2011 2012e 2013e 2014eEPS USD 0.08 0.05 0.05 0.05 0.06 0.06EPS adj USD 0.06 0.05 0.05 0.05 0.06 0.06Dividend ps USD 0.01 0.01 0.02 0.01 0.01 0.02Book per share USD 0.27 0.31 0.34 0.39 0.45 0.51Year end shares Millions 705.1 705.1 705.1 705.1 705.1 705.1Price SGD 0.44 0.49 0.45 0.39 0.39 0.39P/E X 4.3 7.2 7.4 6.0 5.4 5.0P/E adj X 5.6 7.2 7.4 6.0 5.4 5.0Dividend yield % 4.2 3.0 6.5 4.2 4.7 5.0P/Book X 1.3 1.2 1.0 0.8 0.7 0.6EV/EBITDA adj X 4.3 6.0 4.9 2.9 1.8 0.9EV/EBIT adj X 5.0 7.2 6.4 3.8 2.3 1.1EV/Cap employed X 1.1 1.1 0.8 0.5 0.3 0.1

Share price and targetPrice SGD 0.39Price target 12m SGD 0.65Recommendation BUYKey data per shareBook value USD 0.34NAV USD 0.66P/Book X 0.90P/NAV X 0.46EPS gr11-14e %cagr 8.3%Financial structureMarket cap. SGDm 275.0Market cap. USDm 214.6Net int. bear debt USDm -43.29Enterprise value USDm 171.3Shares outst. Millions 705.1Equity/tot assets % 94.4Share price performanceAbs. 1/3/12m -1/-12/-30Rel. 1/3/12m 2/4/-17High/Low 12m SGD 1/0STI index 2133.630days volatility % 57Company attributesReuters ticker CHOF.SISupplySingapore

ReportingQ1 2012

ManagementCEO Gary KohCFO Teo Peck BeeAddressCH Offshore388 Jalan Ahmad Ibrahim

H.p.: www.choffshore.com.sgTel +65 6861 1711




17.10.2011

55

60

65

70

75

80

85

90

95

100


CH Offshore


75

80

85

90

95

100


CH Offshore

Rebased consensus average forward EPS (12m, USD)

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012e 2013e 2014e-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Revenue (USDm) Revenue Growth

Revenue GrowthRevenue (USDm)

0.000

0.010

0.020

0.030

0.040

0.050

0.060

0.070

0.080

0.090

2008 2009 2010 2011 2012e 2013e 2014e0.000

0.005

0.010

0.015

0.020

0.025

EPS (USD) DPS (USD)

DPS (USD)EPS (USD)

0

10

20

30

40

50

60

2008 2009 2010 2011 2012e 2013e 2014e0%

10%

20%

30%

40%

50%

60%

70%

80%

EBITDA (USDm) EBITDA margin

EBITDA marginEBITDA (USDm)

-20

-10

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012e 2013e 2014e0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

FCF (USDm) Dividend yield

Dividend yieldFCF (USDm)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012e 2013e 2014e0%

5%

10%

15%

20%

25%

30%

35%

40%

Price/Book ROE

ROEPrice/Book



17.10.2011

EOC Limited (HOLD, TP NOK7) A play on the production phase of O&G cycle Oslo-listed EOC is the sister company of Singapore-listed Ezra Holdings (which owns 49% of EOC). It owns and operates one FPSO under contract off Thailand, one new FPSO contract (with partners) off Vietnam, and three heavylift accommodation barges. EOC primarily operates in the Asia Pacific region in two focused divisions (FPSO and construction support).

Divisions • FPSO segment. Operates and manages FPSO projects in Asia. • Offshore construction support segment. Provides offshore

construction, accommodation, pipelaying, heavylift, transportation and installation services through its three construction vessels.

Assets • 1x gas FPSO Arunothai off Thailand. • 1x newbuild FPSO Lewek Emas (with partners) off Vietnam, commencing

operation in Oct 2011. • 3x heavylift accommodation barges.

Recent developments • Vietnam FPSO update. Expected to commence 6+6-year charter in Oct

2011. Ezra’s stake is estimated at 41% and contributions will be equity accounted (including management fees; EOC owns 50% of the JV that operates the vessel). On a full ownership basis, the contract is estimated to contribute yearly revenue of USD82m and EBITDA of USD60m (10% IRR assumption).

• Targeting offshore windfarm market. Exploring new opportunities in providing offshore support services to the windfarm installation market in Asia. It intends to explore opportunities (still in an early stage), leveraging on its existing fleet of construction barges, likely to be Lewek Champion or Chancellor.

• Q4 2010/11 results due out at the end of October.

Expected newsflow • FPSO contract tenders in West Africa and Asia. • Longer-term, management is targeting at least one FPSO project every

12–18 months to achieve growth. • Potential contract for construction barge Lewek Champion. • Potential windfarm initiatives. • Potential dual listing in Singapore.

Valuation Going forward, focus is likely to be on potential FPSO projects to drive growth, which are not discounted in the current share price. With limited near-term catalysts, we reiterate our HOLD recommendation and NOK7 price target; our NAV is NOK6.72.



17.10.2011

Fleet working status • FPSO Arunothai – on 3+2-year

charter with PTTEP off Thailand at cUSD228k/day. Firm charter ends in October 2012 (2012/13)

• Lewek Champion – on USD45m offshore pipe-laying and platform installation contract with Chevron off Thailand since late February 2011. This kept it busy until August 2011 (2010/11). Average dayrate of cUSD250,000; we forecast higher operating expenses (due to project-based element) at USD170,000/day

• Lewek Chancellor – on extended charter off Thailand, at rate of cUSD23k/day, and looking at 1-year term charter opportunity off India

• Lewek Conqueror – on term charter, ending March 2014, contract off Brunei at USD25k/day

• Under construction FPSO for Vietnam – expected to commence 6+6-year charter in early Oct. Ezra’s stake is estimated at 41% and contributions will be equity accounted (including management fees, which EOC owns 50% of the JV that operates the vessel). On a full ownership basis, contract is estimated to contribute yearly revenue of USD82m and EBITDA of USD60m (10% IRR assumption)

Q4 2010/11 preview (August year-end) EOC is expected to report its Q4 2010/11 results at the end of October.

We are above consensus Key focus will be on the contract status of the key construction barge Lewek Champion (believed to be docking at a yard in Malaysia) and potential dual-listing status, and the potential FPSO tenders (not discounted in our model).

We expect Q4 revenues of USD46m (consensus USD40m), EBITDA of USD20m (consensus USD17m), EBIT of USD14m (consensus of USD10m), net income of USD10m (consensus of USD8m) and EPS of USD0.093 (consensus USD0.077).

Q4 preview USDmn Q3/11 Q4/11E Q4/11E Chg y/y % Chg


Operating revenues 52 46 40 -5 -10% 160 146 122 154 143 132EBITDA 12 20 17 7 60% 59 76 55 56 74 64EBITDA margin 24% 43% 42% 37% 52% 45% 36% 52% 48%EBIT 6 14 10 7 123% 34 51 30 31 49 39Net f inance -3 -3 na 0 n.m -12 -14 -13 - - -Pretax earnings 3 11 9 8 257% 22 46 29 20 44 37Net result 3 10 8 7 222% 21 44 27 19 42 34

EPS 0.029 0.093 0.08 0.064 2.217 0.19 0.40 0.24 0.17 0.38 0.31

Full-year figures (DnB NOR) Consensus estimates

Source: DnB NOR Markets, consensus from Bloomberg Note: Limited contributions from consensus

Breakdown by segment Revenue breakdow n Q1/10 Q2/10 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11 Q4/11E 2011E 2012E 2013EBarges 17 15 6 12 51 5.1 18 31 26 81 66 62FPSO 10 20 13 20 63 18 20 21 20 80 80 59

EBITDA breakdownBarges 9 4 -1 8 19 0.1 6 3 9 18 31 28FPSO 7 14 6 7 35 8.5 12 10 11 41 44 27

EBITDA marginsBarges 52% 24% -23% 68% 38% 3% 36% 8% 33% 22% 48% 45%FPSO 74% 71% 47% 36% 55% 46% 58% 47% 55% 52% 55% 45% Source: DnB NOR Markets, company

Contracting status of Lewek Champion We believe Lewek Champion has completed its contract with Chevron off Thailand. And based on the vessel search function in Bloomberg, it is at a dock in Malaysia Johor. We model the vessel to earn an average dayrate of USD140k with an operating cost of USD70k/day (EBITDA USD23m) for 2011/12e. We see a downside risk to our Q1 2011/12e (September–November) earnings if the vessel has no job during this period.

Vietnam FPSO project – start-up later than expected EOC owns a 41% equity stake in this FPSO project, with Ezra owning 37%, Keppel’s KSI 20%, and Vietnamese partner PVT the remaining 2%. The total cost of the FPSO is expected to be cUSD405m, with equity funding of USD178m and debt funding of cUSD227m.

The start-up date of the FPSO Lewek EMAS off Vietnam was later than expected. As earlier stated, we had initially expect the first oil in end mid-July (Q4 FY20112e), compared to the actual first oil yesterday, 10 Oct (Q1 FY2012e). Notably, delays in FPSO projects are common in this industry, due to the project execution risks in installation, hookup, commissioning and testing.

Going forward, we are modelling the FPSO based on these assumptions: • Revenue dayrate of USD244,000 (based on contract announcement); • Operating expense of USD60k/day (based on 10% IRR); • Straight-line depreciation over 25 years; • Interest cost of 7.5% on an initial loan funding of cUSD227m; • Tax rate of 25% (Vietnam’s corporate tax rate); and • Management fees (EOC is believed to own a 50% stake in the entity

operating the FPSO) of 5% dayrate.

Impact on earnings We are modeling the FPSO to contribute USD1.7m of share of associate income per month from mid-July for 6+6 years (length of the contract).



17.10.2011

Hence with the shortfall of approx 2.8 months against our expectation, the impact on EPS is -10% in FY2011e and -4% in FY2012e.

Estimates revisions USDmn

2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E

Operating revenues 160.3 146.3 121.7 160.3 146 122 0 0 0 154 143 132EBITDA 59.0 75.7 54.8 59.0 76 55 0 0 0 56 74 64EBITDA margin 37% 52% 45% 37% 52% 45% 0% 0% 0%EBIT 34.22 51 30 34.2 51 30 0 0 0 31 49 39Net f inance -12 -14 -13 -12 -14 -13 0 0 0 - - -Pretax earnings 22 46 29 25 48 29 -2.5 -1.8 0 20 44 37Net result 21.1 44.0 27.1 23.6 46 27 -2.4 -1.7 0 19 42 34

EPS 0.1906 0.3968 0.2442 0.2124 0.41 0.24 -0.02 -0.02 0.00 0 0 0EPS change % -10% -4% 0%

Consensus estimatesChangeNew estimates Old estimates


Balance sheet position Following the Q3 results, we see a slight improvement in the balance sheet, with debt at USD399m (USD402m in Q2), cash of USD85m (USD78m in Q2), restricted cash of USD74m (USD74m) and net debt of USD314m (USD324m).

Potential dual listing in Asia not a near-term trigger As mentioned previously, we believe EOC is likely to achieve a dual listing in Singapore. We believe this would be viewed positively in the market as investor interest is strong in Asia, EOC’s operating base. However, given the current capital market conditions, the listing process might be delayed.

Valuation and recommendation Our NAV is NOK7.29 per share. In our view, the forward multiples look attractive, partly due to high leverage. The estimates are expected to be lower as we expect earnings to decline from 2011/12e, as the key FPSO Lewek Arunothai will be earnings based on a step-down rate. We reiterate our HOLD recommendation, with a price target of NOK7.

NAV of NOK6.72/share

Vessel Type BuiltCost

(USDm)Net debt (USDm)

Equity value

(USDm)

Current equity implied value (USDm)

Implied value

(USDm)

PV of vessel's

FCF

Net Asset Value

(USDm)

NAV adjusted for debt (USDm)

NAV/ share (USD)

A B C=A-B D E=D+B F G H=G-B ILew ek Conquerer Accomm Construction Barge 2004 26 17 9 6 23 31 27 10 0.09Lew ek Chancellor Accomm Construction Barge 2007 26 17 9 6 23 30 27 10 0.09Lew ek Champion Accomm Pipe Lay Barge 2007 120 78 42 29 106 131 145 67 0.61Lew ek Arunothai Gas FPSO 2008 322 209 113 77 285 268 250 41 0.37Total 100% owned vessels 493 320 173 117 437 461 449 129 1.16Chim Sao FPSO Lew ek EMAS @ 41% stake Oil FPSO 2011 62 62 - - - 9 70 9 0.08Total 138 1.24NAV per share (NOK @ USDNOK5.86) 7.29




17.10.2011

EOC LIMITED (EOC.OL)

PROFIT & LOSS USDm 2008 2009 2010 2011e 2012e 2013eRevenues 110 72 113 160 146 122Other income 0 0 0 0 0 1Operating costs 67 37 60 101 71 67EBITDA 43 35 54 59 76 55Depreciation & amortisation 7 8 23 25 25 25EBIT 36 27 31 34 51 30Associated companies 0 0 0 0 9 12Net interest -7 -5 -8 -12 -14 -13Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 28 21 22 22 46 29Tax 3 0 2 1 2 1Minority interest 0 0 0 0 0 0Net profit 25 21 21 21 44 27

BALANCE SHEET USDmIntangible assets 0 0 0 0 0 0Operating assets 369 469 459 459 459 459Associated companies 0 0 28 89 89 89Other current assets 47 54 85 86 86 72Cash & cash equivalents 24 76 81 84 60 59Total assets 440 599 653 718 694 679Equity & minority interest 110 131 152 173 217 244Interest bearing debt 290 378 392 407 377 347Non interest bearing debt 39 89 109 138 100 88Total liabilities & equity 440 599 653 718 694 679Net interest bearing debt 266 303 311 323 317 288

CASH FLOW USDmCash earnings 33 31 42 46 69 52Working capital -11 7 -13 28 -39 2Investments -147 -75 -36 -86 -25 -25Debt 136 88 14 15 -30 -30Equity/dividends 0 0 0 0 0 0Change in cash & liquids 12 52 6 3 -25 -1

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS USD 0.23 0.19 0.19 0.19 0.40 0.24EPS adj USD 0.23 0.19 0.19 0.19 0.40 0.24Dividend ps USD 0.02 0.00 0.00 0.00 0.00 0.00Book per share USD 1.00 1.18 1.37 1.56 1.96 2.20Year end shares Millions 111.0 111.0 111.0 111.0 111.0 111.0Price NOK 14.63 6.58 5.39 6.76 6.20 6.20P/E X 11.4 6.1 5.1 6.3 2.8 4.5P/E adj X 11.4 6.1 5.1 6.3 2.8 4.5Dividend yield % 0.8 0.0 0.0 0.0 0.0 0.0P/Book X 2.6 1.0 0.7 0.8 0.6 0.5EV/EBITDA adj X 12.8 12.4 7.2 6.2 4.6 5.9EV/EBIT adj X 15.5 16.1 12.7 10.7 6.8 10.6EV/Cap employed X 1.4 0.8 0.7 0.6 0.6 0.5

Share price and targetPrice NOK 6.20Price target 12m NOK 7.00Recommendation HOLDKey data per shareBook value USD 1.37NAV USD 7.15P/Book X 0.80P/NAV X 0.15EPS gr10-13e %cagr 9.3%Financial structureMarket cap. NOKm 687.9Market cap. USDm 121.7Net int. bear debt USDm 310.9Enterprise value USDm 432.6Shares outst. Millions 111.0Equity/tot assets % 24.1Share price performanceAbs. 1/3/12m 4/-19/-6Rel. 1/3/12m 2/-4/2High/Low 12m NOK 8/6OSEBX index 63.830days volatility % 42Company attributesReuters ticker EOC.OLSupplyNorway

ReportingQ4 2011

ManagementCEO Lim Kwee KeongCFO Chan Eng YewAddressEOC Limited15 Hoe Chiang RoadFloor 15-01H.p.: www.emasoffshore-cnp.comTel +65 6349 8535




17.10.2011

85

90

95

100

105

110

115

120

125

130


EOC Limited

Rebased price (12m, NOK)

65

70

75

80

85

90

95

100


EOC Limited


0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011e 2012e 2013e-50%

0%

50%

100%

150%

200%

250%

300%



0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

2007 2008 2009 2010 2011e 2012e 2013e0.000

0.005

0.010

0.015

0.020

0.025

EPS (USD) DPS (USD)

DPS (USD)EPS (USD)

0

10

20

30

40

50

60

70

80

2007 2008 2009 2010 2011e 2012e 2013e0%

10%

20%

30%

40%

50%

60%



-200

-150

-100

-50

0

50

2007 2008 2009 2010 2011e 2012e 2013e0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%

30%

Price/Book ROE

ROEPrice/Book



17.10.2011

Ezion Holdings (BUY, TP SGD0.90) Growth engines in liftboats and offshore Australia Ezion develops, owns and charters offshore vessels to clients in the offshore oil & gas industry. It has one of the largest fleets of ballastable vessels used in the commissioning and decommissioning of offshore platforms. We base our investment case on: 1) the liftboats market in Asia/Middle East; and 2) key project initiatives (two marine supply base developments in Australia, positioning Ezion for upcoming marine tenders to support major LNG developments including Gorgon, Wheatstone, Greater Sunrise, off Northern Territory and Western Australia). A key risk (upside and downside) is market demand for liftboats and asset pricing, as Ezion intends to expand its current fleet using capital from sale & leasebacks on existing liftboats.

Divisions • Offshore marine logistic & support services. Fleet of 29 vessels (nine

ballastable vessels, six barges, six tugs) operating in the region, and eight newbuild vessels (tugs and barges) for the Gorgon project.

• 5x self-propelled jack-up liftboats to provide construction, support, and maintenance services for offshore fixed platforms.

• Marine services. Ad-hoc project-based service support contracts.

Assets • Offshore oil & gas support vessels – nine ballastable, six tugs, six barges,

eight tugs and barges for Gorgon project. • 5x self-propelled jack-up liftboats, consisting of 1x liftboat Lewek Leader

on charter to Ezra and 3x units (including 1x newbuild due delivery in Q1 2011/12) backed by term charters, and 1x newbuild (delivery due Q1 2011/12) liftboat targeting at offshore windfarm market.

• 1x 2,000dwt PSV.

Recent developments • Secured a 2+2 USD73m contract in June to convert an old jack-up to an

accommodation rig with JV partner Treatmill for a term charter off North Sea.

• Secured a 5-year USD110m jack-up drilling and production support contract with the JV partner Buccaneer Energy off Alaska in April.

• New marine logistics and support contract of USD55m (for c16 months), secured in August, off Curtis Island, Queensland to support the LNG development in the region.

• Proposed issuance of SGD-denominated perpetual capital securities.

Expected newsflow • Start-up date for the two marine supply bases in Western Australia and

Northern Territory. • Potential offshore marine contracts for the LNG developments off

Australia. Ezion is also targeting offshore support services. • Further newbuild liftboat plan, funding likely come from sale & leaseback. • Q3 results, which are due out in mid-November.

Valuation Our NAV is SGD 0.94 per share. We forecast an adjusted 3-year EPS CAGR of 41% (2010–2013e). The growth engine drivers are the enlarged liftboat fleet, marine supply bases in Australia, and further offshore marine support contracts in Australia. We argue that the market has not fully priced in the base-case growth scenario. Ezion is an attractive ‘GARP’ (growth at reasonable price) stock, commanding a 2012e PEG of 0.12, supported by good fleet contract coverage, ROE-accretive projects (drilling contract in Alaska, marine supply bases in Australia, accommodation contract in the North Sea), and NAV of its assets (liftboats, vessels). We reiterate our BUY recommendation and our SGD0.90 DCF- and NAV-based price target.



17.10.2011

Note: Ezion changed its reporting currency from SGD to USD on 1 January 2011. We have therefore converted its Q3 figures to an SGD-equivalent based on an average Q3 USD-SGD rate of 1.226 for comparison against historical numbers

Q3 preview Ezion is expected to report its Q3 results in mid-November.

Recent contract wins On 8 August Ezion announced it had secured a logistics and support services contract worth USD55m off Curtis Island, Queensland, Australia. This is Ezion’s first step into Eastern Australia and the client is believed to be Bechtel. We believe this will open doors to future contracts in the region and that Ezion’s execution (gaining goodwill with the client) is likely to be key.

Q3e supported by chartering and liftboat fleet We forecast Q3 revenues of SGD44m (USD36m), EBITDA of SGD22m (USD18m), EBIT of SGD18m (USD15m), net income of SGD17m (USD14m) and EPS of SGD0.023 (USD0.019). We expect 14% EPS growth in Q3 QOQ, primarily from a full contribution from Liftboat Teras Conquest 4.

Q3 preview SGDm Q2/10 Q3/11E Q3/11E Chg y/y % Chg


Operating revenues 32.6 44.3 na 12 36% 156 254 311EBITDA 16.1 22.3 na 6 38% 78 125 158

EBIT 13.4 18.1 na 5 35% 64 96 126Net f inance -0.1 -2.1 na -2 3104% -5 -7 -6Pretax earnings 16.5 18.9 na 2 14% 86 111 141Net result 15.1 17.2 na 2 na 80 91 115One-off gains on disposal 0.0 0.0 na 0 na 0 0 0Adjusted net result 15.1 17.2 na 2 13% 80 91 115EPS 0.020 0.023 na 0.00 13% 0.11 0.12 0.145Adjusted EPS 0.020 0.023 na 0.00 13% 0.11 0.12 0.145


Source: Company, DnB NOR Markets

Note that Ezion does not provide quarterly breakdowns, only full-year, for the chartering and OSV services segment (including the liftboats) and the marine services segment.

Revisiting the working status of liftboat fleet Liftboat StatusTeras Conquest 1 (Lewek Leader) Sold 51%, Ezion continues to own the operating rights, the unit is on bareboat charter to EzraTeras Conquest 2 Sold 100% for USD78m in April 2010 to a Middle Eastern client, with gains recorded in Q12011Teras Conquest 3 (Lewek Lifter) Currently working off Abu Dhabi on bareboat with the same Middle Eastern clientTeras Conquest 4 Believed to be working off West Africa in June onwardsTeras Conquest 5 Newbuild ready in Q12012, targeting renewable energy - windfarm maintenance marketTeras Conquest 6 Newbuild ready in Q12012, already backed by 3+2-year time charter LOI Source: Company, DnB NOR Markets,

Key rate forecasts for liftboat fleet Remarks

2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013ELiftboat 1 3+1 Q12010 66,160 66,160 66,160 66,160 42,000 56,000 56,000 56,000 49% owned by EZI but is still chartering the boat to EzraLiftboat 2 Sold Sold 66,160 66,160 66,160 66,160 0 0 0 0 SoldLiftboat 3 3+2 Q42010 69,801 69,801 69,801 69,801 0 0 0 0 Bareboat off Middle EastLiftboat 4 LOI Q22011e - 66,000 66,000 66,000 0 0 0 0 Bareboat with US supermajorLiftboat 5 Available Q22012e - - 55,000 55,000 - 20,000 20,000 Looking at North Sea windfarm maintainance (time charter)Liftboat 6 LOI - 3+2 Q12012e - - 79,000 79,000 - 25,000 25,000 LOI with the Middle Eastern company

Contract length

Contract commencement

Average dayrates (SGD) Opex (SGD)




17.10.2011

Segment estimates In SGDmRevenue breakdown Q1/10 Q2/10 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EOffshore logistics support services 17 19 26 29 91 15 19 21 21 75 115 140Marine services (project-based) 5 7 14 7 33 0 0 3 6 9 10 10Self-propelled jack-up liftboat 3 6 6 10 25 12 14 18 18 63 103 121Marine supply base projects 0 0 0 0 0 0 0 2 7 10 27 39

EBITDA breakdownOffshore logistics support services 7 8 11 11 38 7 7 9 9 32 48 58Marine services (project-based) 1 1 1 0.2 4 0 0 0 1 1 1 1Self-propelled jack-up liftboat 3 1 1 5 10 7 9 13 13 42 66 85Marine supply base projects 0 0 0 0 0 0 0 0 2 1 9 14

EBIT breakdownOffshore logistics support services 5 6 9 9 29 5 5 6 6 23 38 47Marine services (project-based) 1 1 1 0 3 0 0 0 1 1 1 1Self-propelled jack-up liftboat 3 0 0 4 7 7 8 12 12 38 52 69Marine supply base projects 0 0 0 0 0 0 0 0 2 0 5 9

EBIT marginsOffshore logistics support services 28% 30% 35% 31% 32% 35% 27% 31% 31% 30% 33% 33%Marine services (project-based) 20% 20% 7% 2% 11% - - 15% 15% 15% 15% 15%Self-propelled jack-up liftboat 80% 4% 4% 40% 28% 55% 55% 65% 65% 61% 51% 57%Marine supply base projects - - - - - - - 0% 27% 3% 20% 22% Source: DnB NOR Markets, company Note: Quarterly breakdowns are not provided by company; values based on our assumptions and estimates

No quarterly consensus available; we are above on full-year numbers No quarterly consensus is available. However, on an annual basis, we are above consensus on 2010/11e revenues, EBITDA, EBIT, net profit and EPS (in the latter case, by 12%), but below on EBITDA margins.

Our full-year estimates versus consensus (in USDm) USDSGD conversion rate 1.24 1.24 1.24 1.24 1.24 1.24USDm

2011E 2012E 2013E 2011E 2012E 2013E

Operating revenues 126 205 251 117 170 202EBITDA 63 101 128 58 85 102EBITDA margin 50% 49% 51% 49% 50% 51%EBIT 52 78 101 49 72 86Net f inance -4 -5 -5 - - -Pretax earnings 69 89 114 61 77 92Net result 65 73 93 56 71 85

EPS 0.09 0.10 0.12 0.08 0.10 0.11

ConsensusOur estimates

Source: DnB NOR Markets, Bloomberg consensus

Proposed issue of SGD-denominated perpetual capital securities In early August Ezion announced it was looking to raise capital by issuing SGD-denominated perpetual capital securities. We believe it is a hybrid preference share issue, with Ezion expected to pay ‘dividends’ to investors of this security. Hence, we assume it will not be booked under debt, but rather as equity in the balance sheet, i.e. without affecting EPS. The ‘dividends’ would reduce free cash flow available to existing shareholders. And for the perpetual term, we would interpret it as a long-term instrument, which Ezion may have call options in a certain period on the security.

The rationale is to raise funding for planned capex, with outstanding capex mainly in the two remaining newbuild liftboats, and vessels for Gorgon.

We have yet to factor the issue into our model, awaiting further details (size, cost, function, structure, etc). With little information available and the recent weak capital markets, we expect the issue to be delayed.



17.10.2011

Note: Ezion changed its reporting currency from SGD to USD on 1 January 2011. We have therefore converted its Q3 figures to an SGD-equivalent based on an average Q3 USD-SGD rate of 1.226 for comparison against historical numbers

Valuation and recommendation We still believe Ezion is in a strong position to ride the growth in LNG in Australia. The recent new USD55m marine services contract off Curtis Island is testament to this. We consider Ezion’s good geographical reach in key oil & gas developments in Australia as a key competitive advantage. We argue that its positioning of marine supply bases in Exmouth (Western Australia) and Melville Island (Northern Territory), track record, and experience in marine contracts in Queensland (Curtis) and Gorgon project, give it a competitive advantage (learning curve, client relationships, know-how) in securing new contracts in Australia.

We reiterate our belief that Ezion is an attractive ‘GARP’ (growth at reasonable price) stock, commanding a 2012e PEG of 0.12, supported by good fleet contract coverage, ROE-accretive projects (drilling contract in Alaska, marine supply bases in Australia, accommodation contract in the North Sea), and NAV of its assets (liftboats, vessels). Also, based on its track record, we are positive on management’s ability to find new projects that add shareholder value.

Our NAV is SGD0.94 per share. We reiterate our BUY recommendation, with a NAV-based target price of SGD0.90.


NAV Calculation

Fleet size

(unit)Owners

hip Avg size

Vessel avg age

(yrs)

Avg contract length (mths)

Value per

vessel (USDm)

X rate (USD/SGD)

Value per

vessel (SGDm)

Total net

value (SGDm)

Total value/

sh (SGD)Flat-Top Self Ballastable Vessel 1 100% 360x120ft 3 4 15 1.24 19 19 0.02Flat-Top Self Ballastable Vessel 1 100% 330x120ft 3 4 14 1.24 17 17 0.02Flat-Top Ballastable Vessel 3 100% 330x100ft 3 4 13 1.24 16 48 0.06Flat-Top Ballastable Vessel 1 100% 280x90ft 3 4 12 1.24 14 14 0.02Flat-Top Ballastable Vessel 1 100% 330x100ft 1 4 12 1.24 15 15 0.02Flat-Top Vessel 1 100% 330x90ft 3 4 8 1.24 10 10 0.01Jacket Launcher Ballastable Vessel 1 100% 393x110ft 3 4 12 1.24 15 15 0.02Tugs 6 100% 3000bhp 3 4 9 1.24 11 67 0.08Barges 6 100% 250x150ft 4 4 3 1.24 3 19 0.02Tugs & Barges (cargo, lift) for Gorgon proj 11 100% 300x250ft 0 36 5 1.24 6 68 0.09Multi-purpose self-propelled JU liftboat 3 & 4 2 100% 220ft depth 0 36 80 1.24 99 198 0.25Multi-purpose self-propelled JU liftboat 1 1 49% 220ft depth 0 36 80 1.24 99 49 0.06PSV 1 100% 2000dwt 8 60 15 1.24 19 19 0.02Multi-purpose heavylift vessel 1 49% 120m, 7600dwt 2 72 30 1.24 37 18 0.02Multi-purpose self-propelled JU liftboat 5 1 100% 220ft depth 0 0 80 1.24 99 99 0.12Multi-purpose self-propelled JU liftboat 6 1 100% 220ft depth 0 60 80 1.24 99 99 0.12Barges for Curtis Island LNG project 5 100% 450x200ft 0 16 10 1.24 12 62 0.08Total fleet value 36 - - - - - - 837 1.05Other financial assets 0 0.00NAV of marine supply base projects, implied normalised EV/EBITDA 4-7x 102Total asset values 938 1.18NIBD incl future capex (2011E) 241 0.30Equity value (SGDm) 697 0.94Stand-alone valuation of Alaskan drilling jack-up investment (50% share on 6x FY2012e) - SGDm 30 0.04Stand-alone valuation of Demark accomm jack-up investment (50% share on 6x FY2012e) - SGDm 15 0.02Total equity value 743No of shares outstanding 2010 714 -Base case: assuming pref shares converted within 4 years 80Total shares outstanding 794NAV per share 0.94 Source: DnB NOR Markets



17.10.2011

EZION HOLDINGS (EZHL.SI)

PROFIT & LOSS SGDm 2008 2009 2010 2011e 2012e 2013eRevenues 31 74 150 156 254 311Other income 0 0 0 0 0 1Operating costs 18 47 99 77 128 152EBITDA 13 27 50 78 125 158Depreciation & amortisation 4 8 12 14 29 33EBIT 10 18 38 64 96 126Associated companies 0 2 21 26 21 22Net interest -1 -2 -3 -5 -7 -6Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 8 18 66 100 111 141Tax 0 1 4 5 19 26Minority interest 0 0 0 0 0 0Net profit 8 17 52 80 91 115

BALANCE SHEET SGDmIntangible assets 0 0 0 0 0 0Operating assets 144 260 195 285 470 470Associated companies 6 10 57 83 83 83Other current assets 30 54 159 120 152 170Cash & cash equivalents 35 40 98 145 44 92Total assets 215 365 513 633 750 815Equity & minority interest 121 178 271 352 443 558Interest bearing debt 68 156 169 198 198 123Non interest bearing debt 26 31 73 84 109 135Total liabilities & equity 215 365 513 633 750 815Net interest bearing debt 33 115 71 53 153 30

CASH FLOW SGDmCash earnings 12 26 64 94 120 148Working capital -16 -18 -63 50 -9 7Investments -69 -130 2 -125 -213 -32Debt 41 88 13 29 0 -75Equity/dividends 0 0 0 0 0 0Change in cash & liquids -32 -34 17 47 -101 48

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS SGD 0.01 0.02 0.07 0.11 0.12 0.15EPS adj SGD 0.01 0.03 0.06 0.09 0.12 0.15Dividend ps SGD 0.00 0.00 0.00 0.00 0.00 0.00Book per share SGD 0.19 0.25 0.38 0.47 0.57 0.70Year end shares Millions 643.2 714.0 714.0 742.1 770.3 794.4Price SGD 0.19 0.77 0.71 0.50 0.50 0.50P/E X 15.2 32.1 9.8 4.6 4.2 3.4P/E adj X 16.0 29.9 12.3 5.5 4.2 3.4Dividend yield % 0.3 0.1 0.0 0.0 0.0 0.0P/Book X 1.0 3.1 1.9 1.0 0.9 0.7EV/EBITDA adj X 11.6 24.9 11.5 5.4 4.3 2.7EV/EBIT adj X 16.0 36.4 15.2 6.6 5.6 3.4EV/Cap employed X 0.8 2.0 1.3 0.8 0.8 0.6

Share price and targetPrice SGD 0.50Price target 12m SGD 0.90Recommendation BUYKey data per shareBook value SGD 0.38NAV SGD 0.94P/Book X 1.30P/NAV X 0.53EPS gr10-13e %cagr 35.8%Financial structureMarket cap. SGDm 353.4Net int. bear debt SGDm 71.02Enterprise value SGDm 424.4Shares outst. Millions 714.0Equity/tot assets % 55.5Share price performanceAbs. 1/3/12m -10/-28/-31Rel. 1/3/12m -10/-17/-17High/Low 12m SGD 1/0STI index 2734.030days volatility % 76Company attributesReuters ticker EZHL.SISupplySingapore

ReportingQ3 2011

ManagementCEO Chew Thiam KengCFO Cheah Boon PinAddressEzion Holdings15 Hoe Chiang RoadFloor 12-05H.p.: www.ezionholdings.comTel +65 6309 0555




17.10.2011

50

60

70

80

90

100

110


Ezion Holdings


95

100

105

110

115

120

125

130

135

140


Ezion Holdings


0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011e 2012e 2013e0%

20%

40%

60%

80%

100%

120%

140%

160%



0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

2007 2008 2009 2010 2011e 2012e 2013e0.00000

0.00010

0.00020

0.00030

0.00040

0.00050

0.00060

0.00070

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011e 2012e 2013e0%

10%

20%

30%

40%

50%

60%



-150

-100

-50

0

50

100

150

2007 2008 2009 2010 2011e 2012e 2013e0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%

30%

Price/Book ROE

ROEPrice/Book



17.10.2011

EZRA Holdings (upgrade to BUY, TP SGD1.20) Next driver – deepwater subsea Ezra is an integrated offshore support, subsea and marine services provider, focused on supporting clients in the entire oilfield lifecycle with its fleet of young and sophisticated offshore vessels. Coupled with its broad expertise, it provides clients with efficient and effective services, catering to their every need.

Divisions • Offshore Support Services. Manages a mixed fleet of AHTS, AHT and

crewboats. The average term charter is 2–3 years. • Marine Services (yard). Provides services such as marine supplies,

fabrication, engineering and design work to the same set of clients as serviced by Ezra’s OSV division. Ezra is looking to utilise the yard to service its own fleet long-term.

• Subsea services. Provides integrated services for the deepwater subsea market, including installing subsea equipment, umbilicals, risers and flowlines; subsea inspection, maintenance and repair; shallow-water well intervention, well simulation, hydraulic workover, and coil tubing services. The integration with recent acquisition AMC will see Emas-AMC utilising the fleet of subsea capable vessels: 1x deepwater construction vessel Lewek Crusader, 1x MFSV, 3x subsea construction vessels (including two Boa vessels), 1x newbuild construction vessel Aker Connector and 1x newbuild ice-class construction vessel Lewek Constellation.

• FPSO and barges. Ezra holds 49% of EOC, listed in Norway. We use a marked-to-market valuation for EOC.

Assets • 44 vessels, comprising mainly offshore support vessels (see fleet list). • Fabrication yard in Vietnam.

Recent developments • Integration of Aker Solutions’ subsea unit Aker Marine Contractor (AMC). • In April, Ezra announced cUSD120m of new subsea contracts, taking the

order book to USD254m. It is targeting USD1bn over the next 12–18 months.

• Ezra announced in mid-August that its subsidiary EMAS AMC had secured a 3+2-year contract for the installation of wellhead platforms and associated pipelines in the Gulf of Thailand from Chevron Thailand worth cUSD300m.

Expected newsflow • Potential contracts on the upcoming newbuild PSVs and the MFSV Lewek

Fulmar. • Potential SURF/EPIC contract wins in the coming quarters; Ezra is

targeting to lift its subsea backlog to USD1bn.

Valuation We have lowered our NAV from SGD1.43 to SGD1.32 on the fleet update and lower valuation on the MFSV Lewek Fulmar, which is expected to remain a supply vessel rather than be upgraded to become a subsea vessel. Based on this, we have upgraded Ezra from HOLD to BUY, with a target price of SGD1.20 (10% discount to NAV). We believe this discount is warranted, due to the business risks (project execution, complexity in project management, tendering, track record as combined EMAS-AMC entity) in the subsea segment, which is company-specific, rather than asset-specific.



17.10.2011

Q4 2010/11 preview (August year-end) Weak earnings expected – we are 41% below consensus We expect focus in the results to remain on subsea and the funding of outstanding capex. We forecast revenues of USD164m (consensus USD158m), EBITDA of USD18m (consensus USD27m), EBIT of USD11m (consensus USD22m), net income of USD10m (consensus USD17m) and EPS of USD0.011 (consensus USD0.024).

The Offshore Support segment is expected to provide earnings support to group earnings. However, we continue to expect weakness for the Deepwater Subsea segment (the next growth driver identified by the company), as we expect low utilisation on its existing subsea fleet, based on the current execution schedule of its subsea backlog. This would hurt margins due to high overheads. The situation has been worsened as the dayrates of the chartered-in subsea vessels Boa Sub C and Boa Deep C are relatively high. Given the dates of project executions of the subsea backlog, we do not expect Ezra to break even until Q3 2011/12e.

Q4 preview USDm Q2/11 Q4/11E Q4/11E Chg y/y % Chg


Operating revenues 165 155 158 -9.9 -6% 495 748 1,057 498 729 941EBITDA 15 18 27 3.5 24% 73 123 199 82 142 190EBITDA margin 9% 12% 17% 15% 17% 19% 16% 19% 20%EBIT 7 11 22 3.4 46% 48 95 144 59 108 151Net f inance -6 -6 - -0.1 n.m -23 -30 -37 - - -Pretax earnings 2 10 20 7.9 318% 37 88 121 47 96 137Net result (incl one-offs) 7 10 17 3.1 47% 38 81 111 45 87 122Net result (excl one-offs) 1 10 na 9.2 1559% 32 81 111 - - -

EPS (incl one-offs) 0.008 0.011 0.024 0.004 47% 0.05 0.09 0.13 0.06 0.10 0.14EPS (excl one-offs) 0.001 0.011 na 0.011 1421% 0.04 0.09 0.13 - - -

Full-year figures (DnB NOR) Consensus estimates

Source: DnB NOR Markets, company, Bloomberg consensus as of 5 October

Segmental breakdown USDmn Q1/10* Q2/10* Q3/10* Q4/10* 2010* Q1/11 Q2/11 Q3/11 Q4/11E 2011E 2012E 2013ERevenue breakdownOffshore Support Services 56 35 47 61 199 53 54 54 58 219 239 284Marine Services 3 39 53 40 134 5 35 60 39 139 109 118Energy/ subsea 2 1 9 9 21 17 10 10 14 51 131 140AMC/ subsea 0 0 0 0 0 0 0 40 45 85 269 516

EBITDA breakdownOffshore Support Services 11 10 13 13 47 10 15 14 15 54 61 80Marine Services 0 3 10 5 17 1 3 4 4 12 13 15Energy/ subsea 1 0 0 1 2 7 4 2 2 14 24 26AMC/ subsea 0 0 0 0 0 0 0 -5 -2 -7 26 78

EBITDA marginsOffshore Support Services 19% 28% 27% 22% 23% 19% 28% 26% 26% 25% 26% 28%Marine Services 10% 6% 18% 13% 13% 10% 10% 6% 10% 8% 12% 13%Energy/ subsea 39% -17% 5% 9% 8% 43% 35% 15% 12% 27% 18% 18%AMC - - - - - - - -12% -5% -8% 9% 15% Source: DnB NOR Markets, company Note: No reported breakdown in earnings provided, so segmental earnings based on our estimates derived from back-end calculation



17.10.2011

Estimated deepwater subsea services (EMAS-AMC)

Projections of incremental orders from AMCFY2011E (full year)

FY2011E (2H) FY2012E FY2013E

In USDm Aug-end Aug-end Aug-end Aug-endCurrent order book as of July 2011 600New EPIC/ SURF order estimates (USDm) 0 - 505 450Revenues based on % completion (year 1-3) 25% - 45% 30%Revenues (Existing backlog of USD300m as of July 2011) 85 85 130 156Revenues (FY2011 new orders) 0 0 0 0Revenues (FY2012 new orders) 0 0 126 227Revenues (FY2013 new orders) 0 0 0 113Revenues (FY2014 new orders) 0 0 0 0Revenues (FY2015 new orders) 0 0 0 0Total yearly revenues 85 85 256 496Backlog at end of each year 515 515 764 718Fixed overheads - headcounts/ admin 30 15 32 33

EBITDA margins assumed (volatility expected) -8% -8% 8% 14%EBITDA (USDm) -7 -7 21 69Incremental depreciation (vessels included after acq) 0 0 0 12EBIT (USDm) -7 -7 21 57Incremental interest (USDm) 3 3 3 8EBT (USDm) -9 -9 18 50Tax (20%) -2 -2 4 10Net income (USDm) -7 -7 14 40

Total revenues (Aker Connector + New subsea projects) 85 85 269 516Total EBITDA (USDm) -7 -7 26 78


Last subsea contract win in August Ezra announced in mid-August that its subsidiary EMAS AMC had secured a 3+2-year contract for the installation of wellhead platforms and associated pipelines in the Gulf of Thailand from Chevron Thailand worth cUSD300m. The project is expected to commence in early 2012 and end in 2016 if all the options are exercised. We believe Ezra is likely to deploy its subsea construction vessel Lewek Crusader for this job. This contract appears to be shallow-water work.

Subsea order estimate We forecast USD200m for 2010/11e (of which an estimated USD145m has been secured, assuming we can expect an average of USD60m for August’s 3+2 year contract of USD300m) and USD450m for 2011/12e. As we have already passed the year-end for Ezra, there is a shortfall from our estimate. Given that subsea contract awards are lumpy in nature and our expectation that the subsea tenders (SURF, subsea installations) remain healthy in the pipeline (as highlighted in our market outlook), we have reallocated the shortfall of USD55m to 2011/12e, taking our estimate to USD505m. We do not expect this to have a material effect on our earnings estimates, with a net impact of -1% on 2011/12e and +3% on 2012/13e EPS (see below).

Ezra reiterated its target to achieve a USD1bn order book in the next 12 months. It is actively looking to enter markets including the North Sea, West Africa, Asia Pacific and the US GoM.

Estimate revisions due to reallocation of subsea new order estimates USDmn

2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E

Operating revenues 495 748 1,057 503 761 1,032 -9 -13 25EBITDA 73 123 199 73 125 196 -1 -1 4EBITDA margin 15% 17% 19% 15% 16% 19% 0% 0% 0EBIT 48 95 144 49 96 141 -1 -1 4Net f inance -23 -30 -37 -23 -30 -37 0 0 0Pretax earnings 37 88 121 38 89 117 0 -1 4Net result (incl one-offs) 38 81 111 38 82 108 0 -1 3

EPS (incl one-offs) 0.05 0.09 0.13 0.05 0.09 0.12 0.00 0.00 0EPS changes -1% -1% 3%

Old estimates ChangeNew estimates




17.10.2011

Subsea order backlog The current subsea backlog is estimated at USD600m, of which c86% has a longer-term execution period where potential earnings contributions could flow in.

Current subsea backlog Date Announced Customer Region Project Work Scope Vessel expected to be deployed Installation Date Estimated Value

(USDm)1-Mar-11 MODEC Angola, Africa PSVM FPSO Mooring and installation off Africa Current subsea fleet - Boa Sub C or Boa Deep C Q3 2011 0

14-Apr-11 Noble Energy Mediterranean Sea Tamar SURF Installation of 330km of umbilicals and subsea equipment

Current subsea fleet - Boa Sub C/ Boa Deep C/ Lewek Falcon/ Lewek Toucan

Q2 2012 79

25-Mar-10 ABB ABB (Connector) - SURF Installation on long-term basis Aker Connector Q2 2012 831-Mar-11 ABB Barents Sea Goliat SURF Installation of 106km of power cables Aker Connector Q2 2013 121-Mar-11 Statoil North Sea Gudrun SURF Installation of 55km power cables Aker Connector Q3 2013 4114-Jul-11 Various Asia Pacific Various SURF, platform installations Current fleet Q4 2011 - Q4 2012 8516-Aug-11 Chevron Thailand - Installation of wellhead platforms Lewek Crusader Q1 2012 - Q4 2016 300

Total order book 600 Source: DnB NOR Markets, Company

Ezra's subsea vessel fleet Name Type Ownership Remarks

1 Lewek Crusader DP3 subsea flexlay construction vessel Ezra Delivered, now on short term contract (Vietnam Chim Sao project)2 Lewek Falcon MFSV - deepwater construction and installation Ezra Delivered in Q320113 Lewek Fulmar MFSV - deepwater construction and installation Ezra Delivered in April 2011, expected to be put in supply fleet4 Lewek Constellation - Ice maiden DP3 subsea multilay construction vessel Ezra Target delivery in Q120135 Lewek Champion Heavylift construction barge Owned by 49% associate EOC Under EOC, currently on a charter contract6 Enterprise 3 Heavylift pipelay construction vessel Owned by 20% associate Perisai Term charter with Petronas until 20137 Lewek Toucan AHTS capable of deepwater installation Ezra Running down existing backlog (undisclosed)8 Boa Deep C Deepwater construction vessel Charter in from Boa Running down existing backlog (undisclosed)9 Boa Sub C Deepwater flexlay construction vessel Charter in from Boa Running down existing backlog (undisclosed)

10 Aker Connector Deepwater heavylift flexlay construction vessel Aker and Ezra JV

Target for delivery in Feb 2012, it is backed by existing contracts, including a 2+3 year charter with ABB that is expected to generate NOKm 500

11 Lewek Ambassador (fomerly DMT Topaz) Multi-functional suport DSV Ezra Going to Ezra's yard in Vietnam for upgrading works Source: DnB NOR Markets, Company

Capex and balance sheet Following the Q3 results, we forecast additional outstanding capex of USD350m, in line with the guidance. In our view, Ezra’s key subsea vessels have to start securing contracts to generate cash flow to support the capex plan.

Furthermore, we believe that in the medium to longer term (2012/13e onwards), Ezra will have to expand its subsea fleet to achieve the scale to compete with the larger subsea players such as Technip, Subsea 7 and Saipem. However, we have not factored in any such moves.

Key capex and balance sheet capacity Key capex going forward

Asset name Type SizeTotal cost (USDm)

Est amount paid

(USDm)

Financing assumed (USDm)

Est outstanding cash layout

(USDm)Financial

yearFunding in placed

Lewek Fulmar Subsea 24000 bhp 120 24 96 0 2011 YLewek Falcon Subsea 24000 bhp 120 24 96 0 2011 YLewek Crusader CSV 132m (400t), DP3 140 28 112 0 2011 YNewbuild PSV PSV 3600 dwt 30 9 21 0 2012 YNewbuild PSV PSV 5200 dwt 55 17 39 0 2012 YNewbuild PSV PSV 3600 dwt 30 6 21 3 2012 YNewbuild PSV PSV 5200 dwt 55 11 39 6 2012 YAker Connector CSV - 150 0 75 75 2012 NLewek Constellation Flexlay 3000mt, DP3 300 70 210 20 2013 NAMC acquisition cash cost Company - 100 100 0 0 2011 YTotal 104

Q3 FY2011 Q2 FY2011Balance sheet position USDm USDmCurrent cash position 106 145New capital raised post quarterly 0 0Short term debt 291 253Long term debt 643 548Net debt 827 656 Source: DnB NOR Markets

Issuance of capital securities For the proposed issue of SGD perpetual capital securities announced in early September, details of the offering (pricing) have not been disclosed as the deal is not certain to complete (target size believed to be USD100m), given current capital market conditions. From the preliminary term sheet, the structure of the securities appears to take the form of preference shares that are perpetual and may be callable at a certain points in the future. There is a step-up after the first call date and the distribution rate increases by 2% per annum in each reset period.

The preference shares should provide Ezra funding to finance its capex and loans due in 2012, reducing gearing without affecting EPS. The ‘dividends’ related to the securities would, however, reduce the free cash flow available to existing shareholders. We have yet to factor the issue into our model, awaiting the release of more details (issue size, cost, function, structure etc).



17.10.2011

Valuation and recommendation We have lowered our NAV from SGD1.43 to SGD1.32 on the fleet update and lower valuation on the MFSV Lewek Fulmar, which is expected to remain a supply vessel rather than be upgraded to become a subsea vessel. Based on this, we have upgraded Ezra from HOLD to BUY, with a target price of SGD1.20 (10% discount to NAV). We believe this discount is warranted, due to the business risks (project execution, complexity in project management, tendering, track record as combined EMAS-AMC entity) in the subsea segment, which is company-specific, rather than asset-specific.

The share price is down 35% since Q3 report in mid-July, dragged down by poor investor sentiment and confidence on Ezra’s subsea business, in our view. Based on current valuations, we argue that the selling is overdone and valuations are attractive against the downside risk of its deepwater subsea business. We argue that the market is pricing in value destruction (assuming the turnaround story is dead) for its subsea business, which is unwarranted in our view given the base values of the assets. Even though we expect the subsea segment to only break even in Q3 2011/12e, we advise investors to look beyond short-term weak performance and focus on the earnings potential from this business as higher volume of work is secured (we expect subsea EBITDA to grow from 2011/12e in USD26m to USD78m in 2012/13e). We are positive on the outlook of the deepwater subsea sector, where we believe there will be opportunities and a market for Ezra.

Meanwhile, the offshore support segment continues to provide earnings support for the group (average USD70m over 2011/12e–2012/13e), with a high FCF-generating business.

The key risk remains relatively high leverage, which would be shunned by investors that are more risk-averse in the current macro environment. However, we believe Ezra will be safe with its capital structure, with its yard and offshore supply businesses providing the safety net for cash flow and funding support.

We argue that Ezra will be one of the first-movers among Asian peers in deepwater subsea, and it can be a good proxy for Asian mandate funds looking for such exposure. We believe that Ezra is now in a better position to compete in this market given the acquisition of AMC. In time, investor confidence is expected to return if Ezra can demonstrate it has the know-how to win and execute complex subsea projects. In this high barrier to entry market, we believe its returns should be sustainable (margins).

NAV of SGD1.32, tp at SGD1.20 based on 10% discount to NAV



17.10.2011

Ownership No Vessel name Type BHP Built

NAV (USDm)

Net ownership (USDm)

Sale-leaseback

100% 1 Lewek Roller AHT 4000 2006 9 9 No100% 2 Lewek Ruby AHT 4200 2005 9 9 No49% 3 Bayu Intan AHT 4200 2005 9 4 No49% 4 Lewek Eagle AHTS 4200 2004 9 4 No

100% 5 Lewek Robin AHT 4900 2006 10 10 No100% 6 Lewek Sapphire AHTS 5040 2005 10 10 No100% 7 Lewek Ebony AHTS 5220 2006 12 12 No100% 8 Lewek Ivory AHTS 5500 2001 12 12 No100% 9 Lewek Kea AHT 7340 2008 20 20 Yes49% 10 Lewek Mallard AHTS 7340 2007 20 10 No

100% 11 Lewek Martin AHTS 7340 2007 20 20 Yes100% 12 Lewek Kestrel AHT 7340 2007 20 20 Yes100% 13 Lewek Heron AHTS 8000 2006 23 23 Yes100% 14 Lewek Harrier AHTS 8000 2006 23 23 No100% 15 Lewek Penguin AHTS 10800 2007 28 28 Yes100% 16 Lewek Petrel AHTS 10800 2008 28 28 Yes100% 17 Lewek Pelican AHTS 10800 2007 28 28 Yes100% 18 Lewek Plover AHTS 10800 2008 28 28 Yes100% 19 Lewek Stork AHTS 12000 2006 32 32 Yes49% 20 Lewek Emerald AHTS 12000 2003 32 16 No49% 21 Lewek Swift AHTS 12240 2005 33 16 No

100% 22 Lewek Snipe AHTS 12240 2006 33 33 Yes100% 23 Lewek Swan AHTS 12240 2005 33 33 Yes100% 24 Lewek ST TBN 1 AHTS 12240 2010 35 35 No100% 25 Lewek Toucan AHTS 17600 2008 50 50 Yes100% 26 Lewek Trogon AHTS 17600 2008 50 50 Yes100% 27 Lewek Fulmar MFSV 24000 2011 90 90 No100% 28 Lewek Falcon MFSV 24000 2011 120 120 No100% 29 Lewek Ambassador (former DMT) IMR - DSV

, ,12man SAT 1998 45 45 No

49% 30 Sarah Gold Crewboat 4500 2007 4 2 No49% 31 Sarah Jade Crewboat 9792 2007 9 4 No49% 32 Sarah Pearl Crewboat 9792 2007 9 4 No

100% 33 Ice Maiden - Lewek Constellation Flexpipe 3000mt, DP3 2013 278 278 No100% 34 Lewek Crusader CSV 132m (400t), DP3 2010 140 140 No100% 35 Lewek Merlin AHTS 8000 2010 25 25 No100% 36 Lewek Aries PSV 3600 dwt 2010 30 30 No100% 37 PSV PSV 3000 dwt 2010 25 25 No100% 38 Newbuild PSV PSV 3600 dwt 2010 30 30 No100% 39 Newbuild PSV PSV 3600 dwt 2012 30 30 No100% 40 Newbuild PSV PSV 5200 dwt 2012 55 55 No100% 41 Lewek Altair PSV 3100 dwt 2009 29 29 No100% 42 Lewek Atria PSV 3100 dwt 2010 29 29 No100% 43 Lewek Atlas PSV 3500 dwt 2007 32 32 No100% 44 Newbuild PSV PSV 5200 dwt 2012 55 55 No

Total 1651 1588NAV Calculation Q3'11Vessels not under sale and leaseback incl newbuilds 1195Vessels under sale and leaseback 393NAV of marine services assets - yards at 2012 EV/ EBITDA of 4x (USDm) 53NAV of energy services assets at 2012 EV/ EBITDA of 2x (USDm) 0NAV of EOC (49%), Ezion (14%), Perisai (20%) current market value 123Other financial assets 130Total assets 1893Reported NIBD 827Receivables from EOC -43NPV Future capex 256NPV sales leaseback commitments 73NPV of strike price for options 62Adjusted NIBD 1176Stand-alone valuation of AMC 166Equity value of all assets 883No of outstanding shares post rights issue 795New shares issue to Aker Solutions 72Total shares outstanding 868Equity value per share (USD) 1.02Equity value per share (SGD @ USDSGD 1.30) 1.32Discount to NAV -10%Equity value at discount factor of 0.9 1.19




17.10.2011

Market outlook – subsea Strong outlook Demand for subsea installations goes hand in hand with oil companies’ move into deeper water and more remote and harsh-environment areas. In frontier deepwater regions, fixed installations are not an economically viable solution and fields are developed using subsea wells and floating production facilities (for instance FPSOs).

The size of new discoveries is diminishing; especially in mature regions where the majority of new discoveries are small fields that do not justify stand-alone development. The only viable (i.e. economical) solution for such fields is a subsea tie-in to an existing platform.

Discoveries, production, average size of discovered fields

0

10

20

30

40

50

60

1960-1969 1970-1979 1980-1989 1990-1999 2000-2009

bboe

0

50

100

150

200

250

300mmboe

Discovered oil, bboe/y Production, bboe/y Average size of discovered fields, mmboe

Source: DnB NOR Markets, World Energy Outlook 2010

Increased Oil Recovery (IOR) calls for subsea installations. Another demand driver for subsea installations in mature regions is increased oil recovery. For most gas fields, the natural reservoir pressure sooner or later becomes too low to maintain natural flow at a satisfactory production rate. One way to boost the wellstream and regain production rates is to use subsea gas compression. Instead of a surface gas compressor, a subsea gas compressor is installed on the seabed near the wellhead.

Award of subsea trees expected to increase A common indicator of the demand side of the subsea market is the number of subsea trees expected to be awarded. The number dropped in 2009, but increased again in 2010. Based on projected demand for subsea installations, the number of subsea tree awards is expected to increase significantly in 2012 onwards.

Expected number of subsea tree awards

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

# o

f su

bse

a t

rees

Source: Quest

As average discoveries shrink, oil companies need to develop multiple assets, putting pressure on E&P budgets



17.10.2011

Current tendering activity subsea construction Client Contract type Country Prod unit / Field BiddersPertamina Charter IndonesiaPetrobras Charter Brazil Brazil TBDPetrobras Charter Brazil Brazil TBD Subsea 7, ToisaPetrobras Charter Brazil Brazil TBD Subsea 7, Cecon, Global Industries, Helix, J.Ray Mcdermott, SapuraCrest, TechnipBP EPIC United Kingdom ClairBP EPIC United Kingdom Schiehallion/Loyal Saipem, Subsea 7, TechnipBPZ Energy EPIC Peru CorvinaChevron EPIC Australia Wheatstone/Iago DSME, HHI, J.Ray McDermott, Larsen & Toubro, Samsung Heavy Industries, SOMEChevron EPIC Vietnam South West Gas Program (Omon)Chevron EPIC Angola Lianzi Saipem, Subsea 7, TechnipChevron EPIC Australia Wheatstone/Iago Allseas, Leighton, Saipem, Sea Trucks, Subsea 7, TechnipChevron EPIC Vietnam South West Gas Program (Omon) DSME, Fluor, J.Ray McDermott, Samsung Heavy Industries, SOMEChevron EPIC Angola Mafumeira Sul Saipem, Subsea 7, TechnipCNOOC EPIC Indonesia Banuwati Bakrie, Guna Nusa, J.Ray McDermott, Nisoni, PT PAL, SaipemConocoPhillips EPIC United Kingdom EnochdhuConocoPhillips EPIC Indonesia Kakap SouthCPOC EPIC Joint Development MTJDA-B17 Brooke Dockyard, Kencana HL, Swiber Offshore, Thai NSCCTOC EPIC Joint Development Cakerawala HHI, J.Ray McDermott, Kencana HL, Larsen & Toubro, MMHE ++Dana Gas EPIC United Arab Emirates ZoraExxonMobil EPIC Nigeria Erha North Subsea 7, Sea Trucks, SubseaExxonMobil EPIC Indonesia Banyu Urip BW Offshore, HHIx2, Nisconi, PT McDermott Indonesia,Saipem, SBM++Gazprom EPIC Russia ShtokmanGazprom EPIC Russia ShtokmanGNPC EPIC Ghana Jubilee Unidentified Chinese company, Cecon, Modec, National Gas, Saipem, TechnipHess EPIC USA Tubular Bells/KodiakINPEX EPIC Australia Ichthys Allseas, Leighton, Saipem, INPEX EPIC Australia Ichthys J.Ray McDermott, Saipem, Subsea 7, Technip x 2INPEX EPIC Australia Ichthys DSME, HHI, J.Ray McDermott, Samsung Heavy Industries, STX Heavy IndustriesInteroil EPIC Papua New GuineaKJO EPIC Neutral Zone Hout Saipem, Technip, Fluor, Global Industires, J.Ray McDermott, Larsen & Toubro, NPCKNOC EPIC United Kingdom Western IslesNippon Oil EPIC Malaysia LayangNoble Energy EPIC Equatorial Guinea Alen (ex-Belinda)ONGC EPIC India Cluster 7 Afcons, Essar Offshore, IOEC, J.Ray McDermott, Larsen & Toubro +ONGC EPIC India WO-16 Cluster Essar Offshore, Great Offshore, HHI, Larsen & Toubro, Leighton ++ONGC EPIC India Cluster 7Pertamina EPIC Indonesia KE-39Pertamina EPIC Indonesia Global Industries, J.Ray McDermott, Sapiem, Swiber Offshore, Timas Suplindo ++Petrobras EPIC Brazil Lula Nordeste (Tupi Nordeste) Technip, WellstreamPetrobras EPIC Brazil Cernambi (Iracema)PetroChina EPIC Indonesia West Mudi DMB, PT Duta MarineShell EPIC USA Cardamom Technip, Subsea 7Shell EPIC USA Cardamom Global Industries, Helix, Subsea 7, TechnipShell EPIC Malaysia Gumusut-KakapStatoil EPIC Norway ValemonTotal EPIC Nigeria Ofon Subsea 7Total EPIC Angola Girassol Heerema, Saipem, Subsea 7, TechnipTotal EPIC Nigeria Egina West Africa Ventures,Nestoil, Saipem, Subsea 7, TechnipWoodside EPIC Australia Browse LNG Aker Solutions, ModecZADCO/ADMA-OPCOEPIC United Arab Emirates Upper Zakum HHI, McDermott, NPCC, SaipemApache Installation USA Wide Berth Helix, TechnipBP Installation Vietnam Lan Tay/Lan Do Clough Offshore, Global Industries, McDermott, Sea TrucksChevron Installation Australia Wheatstone/Iago Saipem, Subsea 7, Technip, Sea TrucksConocoPhillips Installation Indonesia Bawal DMB, Global Industries, McDermott ++ConocoPhillips Installation Indonesia Bawal Subsea 7, Swiber Offshore, Timas Suplindo, TechnipCTOC Installation Joint Development Cakerawala Brooke Dockyard, Kencana HL, Lamprell ++Daewoo Installation Myanmar Shwe/MyaEnbridge Offshore Installation USA Big FootExxonMobil Installation Nigeria Erha NorthExxonMobil Installation Nigeria Erha North Subsea 7Galsi SpA Installation Italy SaipemGazprom Installation Russia ShtokmanGazprom Installation Russia ShtokmanLam Son JOC Installation Vietnam Thang Long/Dong DoNewfield Installation USA Pyrenees Global Industries, Helix, Subsea 7, TechnipNexen Installation United Kingdom Scott Allseas, Cecon, Subsea 7, TechnipPDVSA Installation Venezuela Mariscal Sucre SaipemPearl Oil Installation Indonesia Ruby (Indonesia) Saipem, COOEC, Global Industries, HHI, Nisoni x 2 ++PEMEX Installation Mexico Tsimin McDermott, Oceangrafia, Protexa, SMCPetronas Carigali Installation Indonesia PolengPetronas Carigali Installation Malaysia Tangga Barat ClusterPetronas Carigali Installation Indonesia Bukit TuaPTTEP Installation Myanmar Zawtika Saipem, SapuraAcergy, COOEC, EMAS, Global, HHI, J.Ray McDermott ++Salamander Energy Installation Thailand BualuangSantos Installation Indonesia WortelShell Installation Norway Ormen LangeShell Installation Malaysia E11 Hub Integrated Gas ProjectTotal Installation Indonesia Sisi Nubi Global Industries, McDermott, Nisconi, Punj Lloyd, Saipem ++Total Installation Gabon Anguille Subsea 7, SBMTotal Installation Indonesia Peciko Global Industries, J.Ray McDermott, Nisconi, Punj Lloyd, Saipem ++Woodside Installation Australia Browse LNGExxonMobil IRM Nigeria Ekanga Fugro-RUEPertamina IRM Indonesia ArdjunaPetrobras IRM Brazil Brazil TBDShell IRM Nigeria KalaekuleTotal IRM Nigeria EdikanShell Removal EPIC Malaysia Semarang Global Industies, Kencana HL, TL OffshoreNoble Energy Support Equatorial Guinea Alen (ex-Belinda) PESPetrofac Support Malaysia CendorPNOC Exploration Support Philippines Source: DnB NOR Markets, ODS Petrodata



17.10.2011

Competition landscape The main players in the high-end segment of the subsea construction business include Subsea 7, Technip and Saipem. In the medium- to low-end the list of companies is more comprehensive but we would highlight DOF Subsea, Helix, EMAS-AMC and EOC, Bibby Offshore, McDermott, Global Industries, Swiber Offshore, Oceaneering, Cecon, SapuraCrest, Bumi Armada and Heerema. SBM Offshore is also building a diving support vessel and we expect the company to increase its exposure to the subsea market.

As illustrated below, Ezra has moved itself up the value chain, closer to full-service providers such as Technip, Subsea 7 and Saipem. We believe Ezra is well-positioned in the Asian subsea space, as it enjoys good relationships with clients in the region. However, the market remains dominated by the top three high-end subsea players Technip, Subsea 7 and Saipem.

The high end of the subsea construction market has high barriers to entry due to the complexity of projects in deeper waters and harsh environment regions. We expect this part of the market to stay consolidated. For the low end we expect competition to increase as we expect several new companies to try to penetrate the market. When assessing the supply/demand balance for the subsea construction sector, it is therefore important to bear in mind this polarisation of the market. It is also vital to remember that assets alone are not enough to penetrate the subsea construction market. Engineering capacity (to our knowledge the industry is stretched with regards to human capital) and a proven track record are just as important as the actual vessels. Following the Macondo accident we expect track records to have become more important for oil companies.

Market landscape in deepwater subsea

Source: Technip

Value-added (translating into returns) to come from engineering skills The successful integration of AMC (high operating leverage from fixed overheads), good execution of the current subsea backlog (margins), and contract wins are likely to be in focus going forward, in our view, and are vital to raising investor confidence in the shares.

We expect more companies to continue their efforts to penetrate the subsea segment, which may cause vessel expansion. We are, however, not overly concerned about increased competition worldwide due to the complexity of the projects, which continues to increase. The cost of failure and delays is too high for oil companies, as it delays production start-up.



17.10.2011

As there is more value-added in provided subsea services rather than just vessels, we expect the returns to remain superior for engineering companies. SUBC, Technip and Saipem’s key assets are their ability to execute on large and complex projects and we consider the vessels to be necessary, but not sufficient tools. Hence, it is important for Ezra to leverage on AMC’s engineering knowledge and demonstrate its ability to execute complex subsea projects with the new combined entity EMAS-AMC. Before this, winning such contracts will be the initial challenge. We believe this will be a great boost to the business and investor confidence should Ezra be successful in this area. We expect this process to take time due to the lead time needed for planning, identifying the tendering opportunity, getting qualified, positioning for tenders, bidding, winning and execution.

Size and engineering important for utilisation Company size does matter for fleet utilisation in subsea construction. The direct link between size and utilisation is a product of: 1) proven track record; 2) engineering capacity; and 3) flexibility provided by a large vessel fleet. The figure below shows the worldwide utilisation for the subsea construction fleet for January 2011 and August 2011 together with reported vessel utilisation for Subsea 7 and Technip in Q2. Overall utilisation for Subsea 7 and Technip was significantly higher than global utilisation.

Vessel utilisation – subsea construction fleet

67 %

49 % 50 %

74 %

80 % 80 %

57 %

45 %

59 %

65 %

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

All subseaconstruction

Pipelay Derrick pipelay Diving support Subsea 7 Q22011

Technip Q2 2011

CSV utilization August 2011 Utilization January 2011 Source: DnB NOR Markets, ODS Petrodata, Companies



17.10.2011

EZRA HOLDINGS (EZRA.SI)

PROFIT & LOSS USDm 2008 2009 2010 2011e 2012e 2013eRevenues 268 329 354 495 748 1,057Other income 0 0 0 0 0 1Operating costs 46 32 51 39 39 39EBITDA 33 74 65 73 123 199Depreciation & amortisation 6 6 12 25 28 55EBIT 27 69 53 48 95 144Associated companies 13 13 13 12 22 13Net interest 0 -5 -11 -23 -30 -37Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 40 77 55 37 88 121Tax 8 9 3 5 7 10Minority interest 1 0 0 0 0 0Net profit 175 70 76 38 81 111

BALANCE SHEET USDmIntangible assets 10 18 20 20 20 8Operating assets 183 299 611 990 1,113 1,197Associated companies 116 164 198 198 273 273Other current assets 196 239 328 361 539 756Cash & cash equivalents 153 161 187 117 170 217Total assets 712 952 1,430 2,021 2,449 2,785Equity & minority interest 370 534 593 842 923 1,034Interest bearing debt 195 309 578 878 1,078 1,128Non interest bearing debt 146 109 258 301 448 624Total liabilities & equity 712 952 1,430 2,021 2,449 2,786Net interest bearing debt 9 114 320 691 838 841

CASH FLOW USDmCash earnings 203 67 78 52 109 166Working capital 82 -75 64 19 -30 -42Investments -149 -194 -374 -653 -226 -127Debt 70 114 269 300 200 50Equity/dividends 0 0 0 211 0 0Change in cash & liquids 206 -89 37 -70 53 47


Share price and targetPrice SGD 0.97Price target 12m SGD 1.20Recommendation BUYKey data per shareBook value USD 0.89NAV USD 1.32P/Book X 0.84P/NAV X 0.57EPS gr10-13e %cagr 18.0%Financial structureMarket cap. SGDm 767.6Market cap. USDm 599.0Net int. bear debt USDm 320.4Enterprise value USDm 919.4Shares outst. Millions 795.4Equity/tot assets % 41.7Share price performanceAbs. 1/3/12m 2/-38/-46Rel. 1/3/12m 5/-22/-33High/Low 12m SGD 2/1STI index 2133.630days volatility % 63Company attributesReuters ticker EZRA.SISupplySingapore

ReportingQ4 2011

ManagementCEO Lee Chye Tek LionelCFO Tay Chin KwangAddressEZRA Holdings15 Hoe Chiang RoadFloor 15-01H.p.: www.ezraholdings.comTel +65 6742 6765




17.10.2011

40

50

60

70

80

90

100

110


EZRA Holdings


70

75

80

85

90

95

100

105


EZRA Holdings


0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011e 2012e 2013e0%

20%

40%

60%

80%

100%

120%



0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2007 2008 2009 2010 2011e 2012e 2013e0.000

0.010

0.020

0.030

0.040

0.050

0.060

EPS (USD) DPS (USD)

DPS (USD)EPS (USD)

0

50

100

150

200

250

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%

30%

35%



-700

-600

-500

-400

-300

-200

-100

0

100

200

2007 2008 2009 2010 2011e 2012e 2013e0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2007 2008 2009 2010 2011e 2012e 2013e0%

10%

20%

30%

40%

50%

60%

Price/Book ROE

ROEPrice/Book



17.10.2011

Jaya Holdings (BUY, TP SGD0.90) Attractive M&A target Jaya is a leading shipbuilder in Asia, with shipyards in Singapore, Batam Indonesia, and China. The yards specialise in small-mid offshore support vessels (OSV), such as AHTS, PSV and barges. It also owns and charters a fleet of 21 OSVs, mainly bareboat and timecharters, with contract lengths ranging from months to 1–3 years.

Unlike other conventional shipyards that build vessels to order, Jaya builds vessels under its internal newbuild plan and sells them when they are close to completion or ready. Based on market demand, newbuild vessels are either sold or added to the chartering fleet. This makes Jaya extremely cyclical; it was distressed in 2009, but restructured without dilution for shareholders. Jaya has 22 vessels under its newbuild plan.

Earnings volatility should be expected as the majority of earnings are driven by vessel sales. Its business model is building vessels for sale, instead of conventional shipyards that build to order. Hence, the timing of vessel sales is the key variable in driving earnings. Going forward, we expect fewer vessel sales as more newbuilds are expected to be added to the chartering fleet. This is expected to lower near-term earnings as chartering income is spread across a longer period.

Divisions • Yards (shipbuilding and ship repair). Owns and operates three shipyards,

in Singapore, Indonesia (Batam) and China (Nantong/Qidong), with combined shipbuilding capacity of 6–8x OSVs (4,000–16,000bhp for AHTS) and 3–4 barges (3,000–10,000dwt) over a 15-month building cycle. It specialises in AHTS (5,000–16,000bhp), PSV (1,000–3,000dwt), utility supply vessels, tugs and accommodation work barges (1,000–10,000dwt).

• Chartering. Owns 23 vessels, mainly on bareboat and time charters. Jaya has stated its strategic intent to optimise the fleet and increase its exposure in this segment.

Assets • Chartering: 23 vessels, mainly small to mid-sized AHTS (see fleet list). • Newbuilds under construction internally for sale: 22 vessels, mainly AHTS

(see fleet list). • Three shipyards, in Singapore, Batam and China. The Chinese yard is an

outsource yard.

Recent developments • Change of key shareholders in February, with Nautical Offshore exiting its

55% stake in Jaya to a Cathay Asset Management-led consortium.

• Q4 2010/2011 earnings release in August.

Expected newsflow • Potential vessel sales announcements. • New contracting contracts, in the Middle East and Asia Pacific (Malaysia,

Indonesia, Thailand, and Vietnam). • Q1 2011/12e results, which are due out in mid-November.

Valuation Our NAV is SGD0.94 per share. Jaya is trading on a steep discount of 52% to our NAV, presenting an attractive risk/reward payoff in our view. We reiterate our BUY recommendation and NAV-based target price of SGD0.90.



17.10.2011

Q1 2011/12 preview (September year-end) Jaya is due to report its Q1 2011/12 results in mid-November.

Not expecting strong Q1; chartering is the main contributor We expect Q1 earnings to be driven mainly by chartering income. Lumpy earnings are again expected from the shipbuilding segment, where we forecast a newbuild sale of a 5,150bhp AHTS for SGD18m (USD14m).

As mentioned in previous reports, Jaya intends to increase its business mix in the chartering segment by streamlining its fleet, moving newbuilds to the chartering fleet, and disposing of older assets. However, we have yet to factor into our estimates the potential contracting contribution from the newbuilds, due to the limited information on which ones will eventually be put in the chartering fleet.

For now, given that the shift to higher chartering exposure will take time (fleet optimisation, securing contracts), Jaya’s build-to-sell OSV yard business model is likely to make earnings volatile.

Its yard business model is to build vessels for sale, instead of conventional shipyards that build to order. Hence, the timing of vessel sales (earnings recognised when vessels are sold, instead of industry norm of percentage completion) is the key variable in driving earnings. This segment is extremely cyclical and geared towards the offshore cycle.

We thus reiterate that it is challenging to model estimates for Jaya due to the complexity and number of fleet changes (disposals and newbuild additions).

We also expect vessel sales from its chartering fleet for fleet optimisation reasons. These would not be recognised in the shipbuilding segment, but rather as gains or losses from disposal. We stress that, given Jaya’s business model, such gains should not be viewed as one-offs but rather as economic profits. We forecast chartering utilisation of 73% for Q1, compared with 67% in Q4 2010/11 and 61% in 2009/10. We expect utilisation to trend upwards from increasing activity in Malaysia, Indonesia, Thailand, Vietnam and the Middle East. With relatively lower utilisation than peers, we argue that Jaya offers higher earnings upside potential when its fleet utilisation improves.

Q1 2011/12 preview SGDm Q4/11 Q1/12e Q1/12e Chg y/y % Chg


Operating revenues 16.9 39.7 na 22.8 134% 295 698 541EBITDA 9.9 13.7 na 3.7 37% 80 157 128

EBIT 3.0 7.0 na 4.0 133% 53 130 98Net f inance -3.0 -1.7 na 1.3 n.m -7 -6 -6Pretax earnings 0.0 5.3 na 5.2 20173% 46 123 92Gains on vessel disposals (not in new build f leet) 50.2 7.8 na -42.4 -85%Net result including gains on vessel disposals 2.2 4.4 na 2.2 97% 38 102 76

EPS 0.003 0.006 n.a. 0.0 97% 0.05 0.13 0.10



Segment breakdown Revenue breakdown Q1/11 Q2/11 Q3/11 Q4/11 2011E Q1/12e Q2/12e Q3/12e Q4/12e 2012E 2013E 2014EShipbuilding 60 0 0 0 60 18 38 52 96 205 604 443Conventional Shipping 0 0 0 0 0 0 0 0 0 0 0 0Offshore Shipping 18 15 18 17 67 22 22 23 23 90 94 98

EBITDA breakdownShipbuilding 25 0 0 0 25 4 8 10 19 41 121 89Conventional Shipping 0 0 0 0 0 0 0 0 0 0 0 0Offshore Shipping 11 8 9 10 37 10 11 11 11 44 41 45

EBIT breakdownShipbuilding 24 0 0 0 24 3 7 10 19 40 120 88Conventional Shipping 0 0 0 0 0 0 0 0 0 0 0 0Offshore Shipping 5 1 2 3 12 4 4 5 5 18 15 15 Source: DnB NOR Markets, company Note: EBITDA based on our calculations from disclosed profit after tax for each segment, excluding common expenses



17.10.2011

Balance sheet strength With cash of SGD231m, net debt of SGD88m, net gearing of 16%, outstanding capex of cSGD466m and an estimated NAV for its vessels of cSGD1.1bn, we believe Jaya has the resources necessary to fund its capex programme and position itself in a market with improving fundamentals (activity is picking up and there is a better demand/supply balance in OSV).

Key assumptions for shipbuilding segment Key assumptions for Shipbuilding segment Q1/12e Q2/12e Q3/12e Q4/12e 2012E 2013E 2014E

Existing order backlog (30 WIP vessels as of Q4 FY2010):Est outstanding units in WIP existing order book for sale (unit) 21 20 18 15 15 4 0Expected no of completed vessels sold from existing orderbook (unit) -1 -1 -2 -3 -7 -11 -4Est value of vessels sold from existing orderbook (SGDm): A 18 38 52 96 205 390 133

New vessels assumed for continual newbuild plan (own yard):Est new vessel orders for internal newbuild plan (unit) 0 0 2 7 9 14 14Expected no of completed vessels sold from new vessel orders (unit) 0 0 0 0 0 -7 -10Est value of vessels from new orders (SGDm) 0 0 49 244 292 473 487Value of vessels sold from new orders (SGDm): B 0 0 0 0 0 214 310

Vessels transferred to chartering fleet 0 0 0 0 0 0 0Vessels sold from current chartering fleet 1 2 3 4 0 0 1

Total revenues (A + B) 18 38 52 96 205 604 443EBITDA margins assumption - 20% 20% 20% 20% 20% 20%EBITDA (SGDm) 4 8 10 19 41 121 89 Source: DnB NOR Markets

Average dayrates and utilisation

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209

Q309

Q409

Q110

Q210

Q310

Q410

Q111

Q211

Q311

Q411

Financial year

SG

D/d

ay

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Average utilisation rates Average dayrates (SGD) Source: Company, DnB NOR Markets

Undemanding implied vessel values Based on the current share price, we argue that the implied vessel values are undemanding, making this an attractive entry point for investors. We do not rule out the possibility of Jaya being an attractive M&A target for supply companies, as it is trading at a significant discount of 52% to our NAV. We believe supply companies could be interested if Jaya were to adopt more of a chartering focus (higher margins, more stable income).



17.10.2011

Implied vessel values based on current share price

Vessel Name Type Bhp/dwt Built % Ownership Status NAV (USDm)

Implied NAV (USDm) based on

current share price

Sales leaseback

USDSGD ex

Net ownership (SGDm)

1 JAYA SEAL AHTS 5,500 BHP 2004 100% Time charter 12 8 No 1.22 102 JAYA TREASURE 2 AHTS 5,150 BHP 2005 100% Time charter 12 8 No 1.22 103 NOR SPRING AHTS 7,956 BHP 2008 100% Bareboat 24 17 No 1.22 204 NOR CAPTAIN AHTS 10,880 BHP 2007 100% Bareboat 28 20 No 1.22 245 Jaya Concordia AHTS 8,000 BHP 2010 100% Available 25 18 No 1.22 216 DJM Fortune 3 AHTS 4750 BHP 2004 0% Managed 8 6 No 1.22 07 JAYA DEFENDER(887C) AHTS 10,800 BHP 2009 100% Time charter 30 21 No 1.22 268 JAYA AMANDAM AHTS 4,800 BHP 2009 100% Transition 9 6 No 1.22 89 JAYA AMARA(HT06-2014AHTS 4,800 BHP 2009 100% Spot 9 6 No 1.22 810 Sea Hawk 1 AHTS 12,000 BHP 2010 100% Newbuild 35 25 No 1.22 3011 JAYA DAUPHIN AHTS 10,800 BHP 2009 100% Time charter 30 21 No 1.22 2612 JAYA PUFFIN 2 Utility support 3,500 BHP 2004 100% Transition 8 6 No 1.22 713 Jaya 300 Deck cargo bar 9,000 DWT 2007 100% Jetty 5 4 No 1.22 414 DJM Fortune 5 AHTS 4750 BHP 2004 0% Managed 8 6 No 1.22 015 Jaya 301 Deck cargo bar 9,000 DWT 2007 100% Jetty 5 4 No 1.22 416 Jaya 302 Deck cargo bar 9,000 DWT 2007 100% Transition 5 4 No 1.22 417 Jaya Installer 9 - 400p Accom barge 9,954 DWT 2010 100% Bareboat 35 25 No 1.22 3018 JAYA SCOUT AHTS 4,750 BHP 2004 100% Operating 9 6 No 1.22 819 JAYA MERMAID 3 AHT 5,150 BHP 2007 100% Bareboat 10 7 No 1.22 920 Jaya Chieftain AHTS 8160 BHP 2010 100% Available 25 18 No 1.22 2121 AHTS newbuild 10 - JayAHTS 8,000 BHP 2010 100% Available 25 18 No 1.22 2122 Jaya Almighty AHTS 5,150 BHP 2010 100% Operating 12 8 No 1.22 1023 Jaya Conqueror AHTS 8,000 BHP 2010 100% Available 25 18 No 1.22 21

Total 323

Current newbuild vessels earmarked for sale

Vessel Name Type Bhp/dwtExpected delivery % Ownership Status NAV (USDm)

Implied NAV (USDm) based on

current share price

Sales leaseback

USDSGD ex


1 AHTS newbuild 5 AHTS 5,150 BHP 2011 100% Newbuild 13 8 No 1.22 102 AHTS newbuild 6 AHTS 5,150 BHP 2011 100% Newbuild 13 8 No 1.22 103 AHTS newbuild 7 AHTS 5,150 BHP 2011 100% Newbuild 13 8 No 1.22 104 AHTS newbuild 8 AHTS 5,150 BHP 2011 100% Newbuild 13 8 No 1.22 105 AHTS newbuild 13 AHTS 8,000 BHP 2011 100% Newbuild 25 16 No 1.22 206 AHTS newbuild 14 AHTS 8,000 BHP 2011 100% Newbuild 25 16 No 1.22 207 AHTS newbuild 15 AHTS 8,000 BHP 2011 100% Newbuild 25 16 No 1.22 208 AHTS newbuild 16 AHTS 8,000 BHP 2011 100% Newbuild 25 16 No 1.22 209 AHTS newbuild 18 AHTS 8,000 BHP 2012-2013 100% Newbuild 25 16 No 1.22 2010 AHTS newbuild 19 AHTS 8,000 BHP 2012-2013 100% Newbuild 25 16 No 1.22 2011 AHTS newbuild 22 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 23 No 1.22 2812 AHTS newbuild 23 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 23 No 1.22 2813 AHTS newbuild 24 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 23 No 1.22 2814 AHTS newbuild 25 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 23 No 1.22 2815 AHTS newbuild 26 AHTS 16,000 BHP 2012-2013 100% Newbuild 45 29 No 1.22 3616 AHTS newbuild 27 AHTS 16,000 BHP 2012-2013 100% Newbuild 45 29 No 1.22 3617 PSV newbuild 2 PSV 3,000 dwt 2012-2013 100% Newbuild 22 14 No 1.22 1718 PSV newbuild 3 PSV 3,000 dwt 2012-2013 100% Newbuild 22 14 No 1.22 1719 ROV support newbuild ROV 300m depth 2011 100% Newbuild 15 10 No 1.22 1220 ROV support newbuild ROV 300m depth 2011 100% Newbuild 15 10 No 1.22 1221 ROV support newbuild ROV 300m depth 2012-2013 100% Newbuild 15 10 No 1.22 1222 Barge newbuild 4 Barge 9,954 DWT 2011 100% Newbuild 30 20 No 1.22 24

Total 437

NAV Calculation SGDm MethodNAV of all vessels 760 FMVNAV of yard 27 1x book value as of FY2010Total assets 787

FY2012e NIBD + future discounted capex & newbuilds' costs 437Net value of all assets 350No of outstanding shares 770Equity value per share (SGD) 0.45

Incl remaining cost to complete the outstanding newbuild plan




17.10.2011

Valuation and recommendation We are positive on Jaya because of: 1) its intent to shift more weight to its chartering segment, which could put it on the M&A radar screen of offshore companies; 2) the higher margins and earnings upside in its chartering segment given the room for utilisation growth; 3) its relatively strong balance sheet; and 4) the undemanding market-implied valuations on its fleet.

We believe further sector consolidation is generally expected, backed by positive fundamentals and companies’ relatively strong balance sheets. In Jaya’s case, healthy cash balances give European and US offshore companies the firepower for acquisitions. We argue that a potential suitor for Jaya is likely to be a corporate – rather than financial – investor, as the synergistic effects (market expansion, cost management, infrastructure) would be greater. Jaya’s main competitive advantages are: 1) well-managed and good yard execution in small to mid-size OSV vessels, which gives it good a niche; and 2) relatively good market intelligence in the chartering markets in Asia and the Middle East, which demand market know-how and know-who, seizing market opportunities in these growing regions.

We value Jaya on the NAV of its fleet, and our fair value is SGD0.94. Due to its business model, we argue that the valuation should be based on the aggregate NAV of its fleet (chartering and newbuilds planned). Jaya is trading on a steep discount to our NAV, presenting an attractive risk/reward payoff. We reiterate our BUY recommendation and SGD0.90 NAV-based target price.

NAV of fleet – SGD0.94/share

Vessel Name Type Bhp/dwt Built % Ownership Status NAV (USDm)Sales

leasebackUSDSGD

ex


1 JAYA SEAL AHTS 5,500 BHP 2004 100% Time charter 12 No 1.22 152 JAYA TREASURE 2 AHTS 5,150 BHP 2005 100% Time charter 12 No 1.22 153 NOR SPRING AHTS 7,956 BHP 2008 100% Bareboat 24 No 1.22 294 NOR CAPTAIN AHTS 10,880 BHP 2007 100% Bareboat 28 No 1.22 345 Jaya Concordia AHTS 8,000 BHP 2010 100% Available 25 No 1.22 316 DJM Fortune 3 AHTS 4750 BHP 2004 0% Managed 8 No 1.22 07 JAYA DEFENDER(887C) AHTS 10,800 BHP 2009 100% Time charter 30 No 1.22 378 JAYA AMANDAM AHTS 4,800 BHP 2009 100% Transition 9 No 1.22 119 JAYA AMARA(HT06-2014) AHTS 4,800 BHP 2009 100% Spot 9 No 1.22 1110 Sea Hawk 1 AHTS 12,000 BHP 2010 100% Newbuild 35 No 1.22 4311 JAYA DAUPHIN AHTS 10,800 BHP 2009 100% Time charter 30 No 1.22 3712 JAYA PUFFIN 2 Utility support 3,500 BHP 2004 100% Transition 8 No 1.22 1013 Jaya 300 Deck cargo bar 9,000 DWT 2007 100% Jetty 5 No 1.22 614 DJM Fortune 5 AHTS 4750 BHP 2004 0% Managed 8 No 1.22 015 Jaya 301 Deck cargo bar 9,000 DWT 2007 100% Jetty 5 No 1.22 616 Jaya 302 Deck cargo bar 9,000 DWT 2007 100% Transition 5 No 1.22 617 Jaya Installer 9 - 400pax Accom barge 9,954 DWT 2010 100% Bareboat 35 No 1.22 4318 JAYA SCOUT AHTS 4,750 BHP 2004 100% Operating 9 No 1.22 1119 JAYA MERMAID 3 AHT 5,150 BHP 2007 100% Bareboat 10 No 1.22 1220 Jaya Chieftain AHTS 8160 BHP 2010 100% Available 25 No 1.22 3121 AHTS newbuild 10 - Jaya Cavalier AHTS 8,000 BHP 2010 100% Available 25 No 1.22 3122 Jaya Almighty AHTS 5,150 BHP 2010 100% Operating 12 No 1.22 1523 Jaya Conqueror AHTS 8,000 BHP 2010 100% Available 25 No 1.22 31

Total 461

Current newbuild vessels earmarked for sale

Vessel Name Type Bhp/dwtExpected delivery % Ownership Status NAV (USDm)

Sales leaseback

USDSGD ex


1 AHTS newbuild 5 AHTS 5,150 BHP 2011 100% Newbuild 13 No 1.22 162 AHTS newbuild 6 AHTS 5,150 BHP 2011 100% Newbuild 13 No 1.22 163 AHTS newbuild 7 AHTS 5,150 BHP 2011 100% Newbuild 13 No 1.22 164 AHTS newbuild 8 AHTS 5,150 BHP 2011 100% Newbuild 13 No 1.22 165 AHTS newbuild 13 AHTS 8,000 BHP 2011 100% Newbuild 25 No 1.22 316 AHTS newbuild 14 AHTS 8,000 BHP 2011 100% Newbuild 25 No 1.22 317 AHTS newbuild 15 AHTS 8,000 BHP 2011 100% Newbuild 25 No 1.22 318 AHTS newbuild 16 AHTS 8,000 BHP 2011 100% Newbuild 25 No 1.22 319 AHTS newbuild 18 AHTS 8,000 BHP 2012-2013 100% Newbuild 25 No 1.22 3110 AHTS newbuild 19 AHTS 8,000 BHP 2012-2013 100% Newbuild 25 No 1.22 3111 AHTS newbuild 22 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 No 1.22 4312 AHTS newbuild 23 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 No 1.22 4313 AHTS newbuild 24 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 No 1.22 4314 AHTS newbuild 25 AHTS 12,000 BHP 2012-2013 100% Newbuild 35 No 1.22 4315 AHTS newbuild 26 AHTS 16,000 BHP 2012-2013 100% Newbuild 45 No 1.22 5516 AHTS newbuild 27 AHTS 16,000 BHP 2012-2013 100% Newbuild 45 No 1.22 5517 PSV newbuild 2 PSV 3,000 dwt 2012-2013 100% Newbuild 22 No 1.22 2718 PSV newbuild 3 PSV 3,000 dwt 2012-2013 100% Newbuild 22 No 1.22 2719 ROV support newbuild 1 ROV 300m depth 2011 100% Newbuild 15 No 1.22 1820 ROV support newbuild 2 ROV 300m depth 2011 100% Newbuild 15 No 1.22 1821 ROV support newbuild 3 ROV 300m depth 2012-2013 100% Newbuild 15 No 1.22 1822 Barge newbuild 4 Barge 9,954 DWT 2011 100% Newbuild 30 No 1.22 37

Total 672

NAV Calculation SGDm MethodNAV of all vessels 1133 FMVNAV of yard 27 1x book value as of FY2010Total assets 1161

FY2012e NIBD + future discounted capex & newbuilds' costs 437Net value of all assets 723No of outstanding shares 770Equity value per share (SGD) 0.94

Incl remaining cost to complete the outstanding newbuild plan




17.10.2011

JAYA HOLDINGS (JAYA.SI)

PROFIT & LOSS SGDm 2009 2010 2011 2012e 2013e 2014eRevenues 263 357 127 295 698 541Other income 0 0 0 0 0 0Operating costs -213 -263 -70 -216 -541 -413EBITDA 50 94 58 80 157 128Depreciation & amortisation 17 19 26 27 27 31EBIT 33 75 32 53 130 98Associated companies 2 2 2 0 0 0Net interest -14 -6 -6 -7 -6 -6Other financial itemsExtraordinary items 0 0 0 0 1 2Pre-tax profit 21 70 27 46 124 94Tax 7 19 17 8 21 16Minority interest 0 0 0 0 0 0Net profit 1 104 84 38 102 76

BALANCE SHEET SGDmIntangible assets 4 0 0 3 3 3Operating assets 391 375 388 556 679 769Associated companies 7 7 7 7 7 7Other current assets 486 413 352 325 293 206Cash & cash equivalents 102 209 231 104 117 146Total assets 990 1,005 977 995 1,098 1,130Equity & minority interest 375 479 559 598 700 776Interest bearing debt 370 360 319 306 280 263Non interest bearing debt 245 167 99 92 118 91Total liabilities & equity 990 1,005 977 995 1,098 1,130Net interest bearing debt 268 151 88 201 164 117

CASH FLOW SGDmCash earnings 18 123 110 65 129 107Working capital -62 -5 -5 19 58 60Investments 25 0 -38 -197 -150 -121Debt 166 -10 -41 -13 -26 -17Equity/dividends 12 0 0 0 0 0Change in cash & liquids 159 108 25 -126 12 29

VALUATION 2009 2010 2011 2012e 2013e 2014eEPS SGD 0.00 0.13 0.11 0.05 0.13 0.10EPS adj SGD 0.00 0.13 0.11 0.05 0.13 0.10Dividend ps SGD 0.00 0.00 0.00 0.00 0.00 0.00Book per share SGD 0.49 0.62 0.73 0.78 0.91 1.01Year end shares Millions 770.1 770.1 770.1 770.1 770.1 770.1Price SGD 0.35 0.68 0.59 0.44 0.44 0.44P/E X nm 5.0 5.4 8.9 3.3 4.5P/E adj X nm 5.0 5.4 8.9 3.3 4.5Dividend yield % 0.0 0.0 0.0 0.0 0.0 0.0P/Book X 0.7 1.1 0.8 0.6 0.5 0.4EV/EBITDA adj X 10.6 7.1 9.2 6.7 3.2 3.5EV/EBIT adj X 16.1 8.9 16.7 10.1 3.8 4.6EV/Cap employed X 0.7 0.8 0.6 0.6 0.5 0.4

Share price and targetPrice SGD 0.44Price target 12m SGD 0.90Recommendation BUYKey data per shareBook value SGD 0.73NAV SGD 0.94P/Book X 0.61P/NAV X 0.47EPS gr11-14e %cagr -3.1%Financial structureMarket cap. SGDm 338.9Net int. bear debt SGDm 88.05Enterprise value SGDm 426.9Shares outst. Millions 770.1Equity/tot assets % 60.0Share price performanceAbs. 1/3/12m -2/-22/-38Rel. 1/3/12m -2/-11/-24High/Low 12m SGD 1/0STI index 2734.030days volatility % 34Company attributesReuters ticker JAYA.SISupplySingapore

ReportingQ1 2012

ManagementCEO Chan Mun LyeCFO Thai Kum FoonAddressJaya Holdings13 Tuas Crescent

H.p.: www.jayaholdings.comTel +65 6265 1010




17.10.2011

6065707580859095

100105110


Jaya Holdings


95

100

105

110

115

120

125

130

135

140


Jaya Holdings


0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012e 2013e 2014e-100%

-50%

0%

50%

100%

150%



0.000.020.040.060.080.100.120.140.160.180.20

2008 2009 2010 2011 2012e 2013e 2014e0.00.10.20.30.40.50.60.70.80.91.0

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

20

40

60

80

100

120

140

160

180

2008 2009 2010 2011 2012e 2013e 2014e0%5%10%15%20%25%30%35%40%45%50%



-150

-100

-50

0

50

100

150

2008 2009 2010 2011 2012e 2013e 2014e0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012e 2013e 2014e0%

5%

10%

15%

20%

25%

30%

35%

40%

Price/Book ROE

ROEPrice/Book



17.10.2011

Kencana Petroleum (Under Review) Play on Malaysia’s oil service industry Kencana Petroleum is a Malaysia-based oil service company, focusing on providing EPCC services, marine engineering and offshore marine support services primarily in the domestic and Asia regions. Besides this, it has moved into building, refurbishing, repairing and converting marine vessels and offering offshore drilling services (with Mermaid Maritime) as well as the chartering of vessels and rigs with partners. Backed by an established track record, Kencana is a preferred integrated service provider to upstream players. In Malaysia, only seven major offshore fabrication contractors are approved by Petronas and Production Sharing Contract operators (PSC) and have a licence to participate in Petronas tenders; Kencana is one of these.

We like Kencana for its exposure to Malaysia’s oil service industry, with the company looking at MYR3bn–5bn worth of fabrication tenders and driven by positive E&P spending by NOC Petronas. We rate soft factors – such as the strong working relationships forged with Malaysia's NOC Petronas (evident in project wins) – highly in this relatively protected local market. Kencana is looking to maintain a minimum base fabrication order backlog of MYR1bn, through new contracts, at all times.

Divisions • EPCC/Marine engineering services. Core business of providing EPCC

services in engineering and design, fabrication of production facilities (platforms, jackets, wellheads), modules & process skid systems (subsea manifolds), installation (usually outsourced for offshore installations), hook-up and commissioning.

• Offshore support services. Plans to expand the fleet to include more marine assets, to provide a wide range of offshore services in the oil & gas industry including the chartering of rigs and marine vessels.

• Drilling services. Plans to operate tender rigs and drill in Malaysian waters. Current fleet includes the tender rig KM-1 to Petronas on a 5+3+2 year drilling contract, expected to commence in 2010/11.

Assets • 543,000sqm fabrication yard in Malaysia, with 24/7 covered workshops

providing specialised steel fabrication and infrastructure. • Full ownership of the tender drilling rig KM-1.

Recent developments • Part of the consortium (owning 25% stake) that won the gas development

of Berantai field contract from Petronas off Malaysia. • So far in 2010/11 (July-end), cMYR1,628m of new orders have been

secured (including MYR734m EPCC contracts we forecast from Kencana and consortium’s Berantai project).

• Proposed merger between SapuraCrest and Kencana in July. • Kencana announced in late August that it would build two newbuild

tender assisted drilling rigs (TADR) based on an improved version of the KM-1 design, at its fabrication yard in Lamut. Estimated completion is Q1 2012/13.

Expected newsflow • Possible new EPCC contracts from the upcoming tenders in Malaysia

(Petronas) and other Asian regions. • Q1 2011/12e results, which are due out in December.

Valuation Our recommendation is Under Review (previously SELL), pending the conclusion of the merger between Kencana and SapuraCrest.



17.10.2011

Q4 2010/11 update (July year-end) Kencana released its Q4 2010/11 (July year-end) in late September. Below we include the text we wrote in our initial comments post the earnings.

For Q1 2011/12e (October end), we plan to issue a separate preview closer to the expected release, in December.

Key takeaways from Q4 earnings Q4 revenues were higher than expected, due mainly to better progress on the EPCIC orderbook as well as contributions from the diving support business. However, operating margins were below our expectations with a reported EBIT margin of 16.2% versus our estimate of 19.5%. We believe this is due mainly to lower margins in hookup and commissioning (HUC) projects. Q4 revenues were +12% versus our forecast, EBITDA was +7%, EBIT was -7% and EPS was +1%.

Regarding the proposed merger of Kencana and SCRES, the board resolved to accept the offer by IKSB in August 2011. We expect the merger to complete by Q1 2012 and the integration (which we believe has begun) process to take longer. The KEPB share price dropped 9% after the merger announcement in July, and the offer is now at an 18% premium. Based on the offer terms and current share price, the cash yield (cash offer component) is c19%, which we consider attractive. For the value of the IKSB shares (share swap for KEPB’s shares), we argue that the key swing factor in the combined entity (IKSB) is the NPV of synergies. We reiterate that integration is the key to success.

Our recommendation is Under Review (previously SELL), pending the conclusion of the merger.

Absolute earnings in line with our expectations The Q4 2010/11 EBITDA margin was 17.7%, below our estimate of 18.6% and slightly below 2009/10’s average of 18.1%. We believe this was due mainly to hookup and commissioning related projects. The Q4 figures (our estimate and % change YOY and QOQ in brackets) were: revenue of MYR493.7m (MYR441.1m, +77%, +30.7%), EBITDA of MYR87.5m (MYR82m, +51%, +9.5%), EBIT of MYR80m (MYR86m, +54%, +9.2%), net income of MYR63.7m (MYR63.1m, +54%, +12.9%), and EPS of MYR0.035 (MYR0.034).

EPCIC: higher revenues due to variation in project recognition The higher than expected revenues were due mainly to better than expected progress of projects in the existing EPCIC order book (including HUC and subsea engineering services results, which have been grouped together with the drilling segment from this quarter). As we have highlighted in previous updates, it is normal for revenue recognition in the EPCIC segment to be lumpy, due to variations in completion schedules across projects in Kencana’s portfolio.

This quarter, Kencana also reported contributions from its new dive support business, contributing to the quarter’s performance. Adjusting for the reporting changes, and based on our drilling segment estimates, implied blended Q4 EPCIC revenue was MYR454.9m (we forecast MYR396.7m). The implied blended EBIT margin was 10.8% (we forecast 14.7%). We believe the drag on margins on a blended basis was due mainly to the HUC projects (for more details, see later). On our estimates, the implied margin on the hookup and commissioning business is 3%, far lower than the c36% average drilling segment margin and c12% average EPCIC segment margin.

Drilling (KM-1 rig): lower margins on blended basis including HUC As mentioned earlier, the drilling segment included the results from HUC as well as some subsea engineering businesses in Q4. The ‘as reported’ segment results showed an EBIT margin of 9% versus our estimate of 14.7% (which included only KM-1). Although the company did not provide a sub-segment breakdown for drilling, HUC and subsea engineering, we estimate pure drilling revenue of cMYR39m and an EBIT margin of c38.4%, with contributions coming only from the KM-1 rig.



17.10.2011

Expansion of drilling fleet through two tender rig newbuilds Kencana announced in late August that it would build two newbuild tender assisted drilling rigs (TADR) based on an improved version of the KM-1 design, at its fabrication yard in Lamut. Estimated completion is Q1 2012/13. This should add to Kencana’s competitiveness as it continues to build its drilling business.

Merger update KEPB accepted the offer by IKSB subject to terms and conditions that include obtaining all the requisite approvals. We expect the merger to complete by Q1 2012 and the integration (which we believe has begun) to take longer. The share price of KEPB dropped 9% after the merger announcement in July and the offer was at an 18% premium. Based on the offer terms and current share price, the cash yield (cash offer component) is c19%, which we consider attractive.

For the value of the IKSB shares (share swap for KEPB’s shares), we argue that the key swing factor in the combined entity (IKSB) is the NPV of synergies, which can be broken down into earnings expansion through revenue growth (international markets such as Brazil, Australia and South East Asia) and an improving cost structure (shared services and efficiency in work process).

Integration is key to success. We reiterate that the integration will take time, as in all mergers, but we are not able to estimate the timeframe. Integration comes in the form of consolidating strategic plans, potential reaping of synergies gains in revenue growth through market/geographical expansion and cross-selling, streamlining shared services, and amalgamating the organisation culture of the two entities.

Please see separate report on the proposed merger issued in July.

No contribution from Berantai development project yet There was no contribution from the Berantai oilfield development project, which commenced early this year. As highlighted previously, we believe this is mainly because Petronas and the other contractors (such as Kencana, SapuraCrest and Petrofac) are still ironing out issues concerning the accounting method to be adopted for the recognition of revenues and costs as this is the first ever risk service contract to be awarded by Petronas.

Valuation and recommendation Our recommendation is Under Review (previously SELL), pending the conclusion of the merger between Kencana and SapuraCrest.



17.10.2011

KENCANA PETROLEUM (KENP.KL)

PROFIT & LOSS MYRm 2008 2009 2010 2011 2012e 2013eRevenues 1,452 1,141 1,090 1,561 1,931 2,173Other income 0 0 0 0 0 0Operating costs -1,316 -964 -893 -1,245 -1,559 -1,770EBITDA 136 177 197 316 372 404Depreciation & amortisation 13 18 18 26 88 98EBIT 123 159 179 290 284 306Associated companies 0 0 -1 0 23 12Net interest -2 -6 -6 -18 -26 -16Other financial itemsExtraordinary items 0 0 0 0 0 1Pre-tax profit 121 153 171 273 280 303Tax 36 35 36 50 64 70Minority interest 0 0 0 0 0 0Net profit 85 118 136 223 216 233

BALANCE SHEET MYRmIntangible assets 36 36 37 334 37 37Operating assets 273 309 482 1,503 1,952 1,952Associated companies 28 56 54 2 248 262Other current assets 273 289 574 575 710 799Cash & cash equivalents 260 254 223 828 1,006 1,199Total assets 871 945 1,371 3,243 3,957 4,252Equity & minority interest 311 429 753 1,757 2,330 2,538Interest bearing debt 151 213 228 888 888 888Non interest bearing debt 408 303 390 603 746 834Total liabilities & equity 871 945 1,371 3,248 3,964 4,260Net interest bearing debt -109 -41 5 58 -121 -313

CASH FLOW MYRmCash earnings 98 226 155 175 309 330Working capital 70 -213 -199 271 -22 -3Investments -144 -82 -192 -1,291 -488 -111Debt 58 62 15 660 0 0Equity/dividends 0 0 0 0 -22 -23Change in cash & liquids 82 -7 -221 -185 -221 192

VALUATION 2008 2009 2010 2011 2012e 2013eEPS MYR 0.09 0.13 0.08 0.12 0.11 0.12EPS adj MYR 0.09 0.13 0.08 0.12 0.11 0.12Dividend ps MYR 0.10 0.10 0.01 0.01 0.01 0.01Book per share MYR 0.35 0.48 0.45 0.96 1.17 1.28Year end shares Millions 896.8 902.2 1,658 1,837 1,987 1,987Price MYR 1.22 1.16 1.54 2.95 2.55 2.55P/E X 12.9 8.9 18.8 24.3 23.5 21.8P/E adj X 12.9 8.9 18.8 24.3 23.5 21.8Dividend yield % 8.2 8.6 0.6 0.4 0.4 0.5P/Book X 3.5 2.4 3.4 3.1 2.2 2.0EV/EBITDA adj X 7.0 5.4 12.7 17.3 12.6 11.1EV/EBIT adj X 7.8 6.0 14.0 18.9 16.6 14.7EV/Cap employed X 2.1 1.5 2.6 2.1 1.5 1.3EV/Sales X 0.7 0.9 2.3 3.5 2.6 2.2

Share price and targetPrice MYR 2.55Price target 12m MYR 2.15Recommendation SELLKey data per shareBook value MYR 0.45P/Book X 5.61Financial structureMarket cap. MYRm 4,686Net int. bear debt MYRm 5.13Enterprise value MYRm 4,691Shares outst. Millions 1,837Equity/tot assets % 58.9Share price performanceAbs. 1/3/12m -4/-14/47Rel. 1/3/12m -5/-5/51High/Low 12m MYR 3/2MSCI Malaysia index 529.930days volatility % 44Company attributesReuters ticker KENP.KLEnergy

ReportingQ1 2012

ManagementCEO Dato’ Mokhzani bin MahathirCFOAddressKencana Petroleum50-2-2, Level 2, Wisma UOA Damansara50, Jalan Dungun, Damansara HeightsH.p.: www.knpe.com.myTel +(6) 03-2093 2280




17.10.2011

90

100

110

120

130

140

150

160

170

180


Kencana Petroleum

Rebased price (12m, MYR)

95

100

105

110

115

120

125

130


Kencana Petroleum

Rebased consensus average forward EPS (12m, MYR)

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011 2012e 2013e-40%

-20%

0%

20%

40%

60%

80%

100%

Revenue (MYRm) Revenue Growth

Revenue GrowthRevenue (MYRm)

0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

2007 2008 2009 2010 2011 2012e 2013e0.00

0.02

0.04

0.06

0.08

0.10

0.12

EPS (MYR) DPS (MYR)

DPS (MYR)EPS (MYR)

0

50

100

150

200

250

300

350

400

450

2007 2008 2009 2010 2011 2012e 2013e0%

5%

10%

15%

20%

25%

EBITDA (MYRm) EBITDA margin

EBITDA marginEBITDA (MYRm)

-1,000

-800

-600

-400

-200

0

200

400

2007 2008 2009 2010 2011 2012e 2013e0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%

FCF (MYRm) Dividend yield

Dividend yieldFCF (MYRm)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2007 2008 2009 2010 2011 2012e 2013e0%

10%

20%

30%

40%

50%

60%

Price/Book ROE

ROEPrice/Book



17.10.2011

Keppel Corp (BUY, TP SGD10) Conglomerate, with offshore yards focus Keppel Corp is one of Singapore’s largest multinational groups, with its core business in offshore and marine, property and infrastructure. The main shareholder is state-owned Temasek Holdings, with 21%. The key earnings driver remains the Offshore & Marine segment, contributing 49% of our SOTP valuation and 58% of 2011e EBITDA.

Assets • Keppel Offshore and Marine (48% of SOTP). Global yard leader in

offshore rig design, construction and repair, ship repair and conversion, and specialised shipbuilding. It harnesses the experience and expertise of 20 yards and offices worldwide to be near customers and markets.

• Property (14%). Focus on two core businesses of property development (Keppel Land) and property fund management (K-Reit, Alpha Investment Partners). It is geographically diversified in Asia, focused on Singapore, China, Vietnam, Indonesia and India. Listed property exposure is through its Singapore-listed property companies (Keppel Land and K-Reit).

• Infrastructure (12%). Focus areas are telecom, transport, environmental engineering and power generation. The majority of the investment is in KIE and Singapore-listed Keppel T&T.

• Investments (2%). Associate investment in Singapore-listed K1 Ventures, K-Green Trust and Dyna-Mac.

• Unlisted assets (22%). Property subsidiaries and associates. • Net cash (2%). Adjusted net cash position.

Recent developments • Secured close to SGD8.6bn of new orders YTD. • SGD10.4bn order book (expected book to bill ratio 1.3x) should provide

revenue and earnings visibility for the next 22 months. • Q3 results due out on 20 October. • Exercised of newbuild jack-up option by Ensco for USD245m in early Oct. • Lapsing of three newbuild jack-up options; six options remaining. • Bonus share issue of 10% increase in shares outstanding in April. • The Petrobras newbuild rig tender for the remaining 21 rigs was opened in

October. Keppel is in the running for six rigs (indicative pricing USD650-750m each), and we believe it is likely to tender for the semi-sub design. We believe Keppel is well-positioned for the orders, after the opened bids but are unable to quantify the valuation impact at this time due to the limited information available on the rig pricing and terms. As stated before, potential orders from this tender have not been factored into our model.

Expected newsflow • New orders internationally from rig owners and oil companies. And the

exercise of four of eight existing outstanding newbuild jack-up options. • Petrobras tender awards in late 2011. • The Q3 results are due out on 20 Oct.

Valuation We value Keppel using a SOTP valuation of SGD10.13. We reiterate our BUY recommendation and SGD10 target price.



17.10.2011

Q3 preview The Q3 results are due out on 20 Oct.

We do not disagree with the widely held view that newbuild activity will slow down; however, we argue that the market is too defensive and is pricing in a weaker than normalised cycle. As one of the world’s top offshore yards, we believe a normalised cycle would result in sufficient demand to fill its slots. The jack-up and deepwater floaters segments remain supported by robust activity. We believe that robust activity and the tightening of the ultra-deepwater (UDW) space might result in new ordering activity in the medium to longer term. This would be a positive trigger for both Keppel and SMM, as they have seen limited deepwater new orders in this cycle, with most drillship orders going to the Koreans. We now see a greater chance that deepwater semi-sub drilling rig orders will return and believe that the Singapore rig builders will be well-positioned for them.

Our base-case scenario assumes the O&M ordering cycle normalises, with sufficient demand to fill slots at top-end yards. SMM and KEP are the top rig builders in this market and we believe are in a good position to maintain market share in the rig building segment of jack-ups and semis.

The SGD10.4bn order book (expected book to bill ratio 1.3x) should provide revenue and earnings visibility for the next 22 months. Keppel is known for its excellent track record in project execution, with strong operating margins over the past few years. We believe it will be able to achieve a ‘new normal’ margin above 14% (normalised EBITDA margin 14.5% 2006–2010) in the long run, due to continued improvements in cost management, project management, and R&D.

Apart from O&M, we expect the Infrastructure business (c9% of 2011e EBIT) to enhance its returns, with key projects (treatment plants and TianJin Eco-City) gaining operating efficiency and optimal production. We have already seen EBIT margin improvements: from 3% in 2010 to 5% in H1 2011.

The 2011e annualised dividend yield of 5% is also expected to support the share price. Keppel has declared an interim dividend of SGD0.17 per share for Q2, equalling 40% of our full-year dividend forecast of SGD0.42.

Downside risks Risks include further market weakness, which would put downward pressure on the shares, as Keppel is widely regarded as a beta stock (c5% of the FFSTI index) and is well-held by institutional investors.

Other potential risks relate to orders in the current backlog and the payment terms associated with secured orders. Rig orders (cSGD7.4bn) made since October 2010 have been mainly on a bullet payment structure (20% initial downpayment, 80% upon delivery), and 80% of orders have yet to be financed. Hence, in a downcycle scenario where speculative rig owners default due to a lack of access to funding and chartering contracts, yards may end up with newbuilds (similar to the previous downcycle, when we saw delays from Skeie Drilling Production – now Rowan, changes to orders by Seadrill, and cancellation by MPU). In the event of cancellation, we argue that Keppel would be able to maintain a buffer (cost of building a rig is below market value) to protect its downside, given its execution capabilities.

Q3 earnings not expected to be a key price event We expect Q3 revenues of SGD2,361m, EBITDA of SGD366m, EBIT of SGD312m, net income of SGD285m, and EPS of SGD0.16. No quarterly consensus is available, but on a full-year EPS basis we are 4% below for 2011e, 19% below for 2012e, and 23% below for 2013e.

In current weak macro uncertainty, we believe the upcoming Q3 report (due 20 October) will receive limited investor focus. We expect an EBITDA margin of 16.6% in the O&M segment, where the trend is expected to wane from the strong 25% in H1 and normalise close to our long-term forecast of 14%.



17.10.2011

O&M segment’s margin

0%

5%

10%

15%

20%

25%

30%

35%

Q1/0

6

2Q

/06

Q3/0

6

4Q

/06

Q1/0

7

2Q

/07

Q3/0

7

Q4/0

7

Q1/0

8

Q2/0

8

Q3/0

8

Q4/0

8

Q1/0

9

Q2/0

9

Q3/0

9

Q4/0

9

Q1/1

0

Q2/1

0

Q3/1

0

Q4/1

0

Q1/1

1

Q2/1

1

Q3/1

1E

Q4/1

1E

2011E

2012E

2013E


Earnings preview and consensus numbers SGDm Q2/11 Q3/11E Q3/11E Chg y/y % Chg


Operating revenues 2,288 2,361 na 73.3 3% 9,467 11,077 11,519 9,713 11,763 13,043EBITDA 508 366 na -142.3 -28% 1,765 1,654 1,694 1,917 2,174 2,345EBITDA margin 22% 15% - 19% 15% 15% 20% 18% 18%EBIT (before associates) 460 312 na -147.8 -32% 1,563 1,444 1,469 1,737 1,961 2,121Net f inance 1 -3 na -4.0 n.m. 2 15 39 - - -Pretax earnings 512 387 na -124.8 -24% 1,805 1,756 1,806 1,972 2,234 2,399Net result 385 285 na -100.2 -26% 1,294 1,237 1,258 1,381 1,533 1,642

EPS 0.22 0.16 na -0.06 -26% 0.74 0.70 0.71 0.78 0.86 0.92

Full-year figures (DnB NOR) Consensus estimate

Source: DnB NOR Markets, company, Bloomberg consensus as of 4 October 2011

Segmental breakdown (SGDm) Revenue breakdown Q1/10 Q2/10 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EOffshore & Marine 1493 1429 1458 1196 5577 1199 1324 1415 1458 5395 6623 6644Property 355 457 367 506 1685 437 195 280 500 1412 1680 1982Infrastructure 624 526 621 739 2510 650 731 660 593 2635 2744 2858Investments 1 3 4 2 11 2 37 6 -20 24 29 35

EBITDA breakdownOffshore & Marine 273 310 308 361 1252 281 353 234 248 1116 935 918Property 141 150 137 136 563 116 90 84 150 440 521 575Infrastructure 49 23 30 17 120 59 39 46 42 185 192 200Investments -3 11 3 2 13 0 26 1 -4 23 6 1

EBIT breakdownOffshore & Marine 242 281 276 319 1119 248 321 202 216 974 822 797Property 138 147 134 134 553 113 87 81 147 429 489 536Infrastructure 39 13 20 4 75 47 27 34 30 137 127 135Investments -3 11 3 2 12 0 26 1 -4 23 42 38

EBITDA marginsOffshore & Marine 18% 22% 21% 30% 22% 23% 27% 17% 17% 21% 14% 14%Property 40% 33% 37% 27% 33% 27% 46% 30% 30% 31% 31% 29%Infrastructure 8% 4% 5% 2% 5% 9% 5% 7% 7% 7% 7% 7%

EBIT marginsOffshore & Marine 16% 20% 19% 27% 20% 21% 24% 14% 15% 18% 12% 12%Property 39% 32% 37% 26% 33% 26% 45% 29% 29% 30% 29% 27%Infrastructure 6% 2% 3% 1% 3% 7% 4% 5% 5% 5% 5% 5% Source: DnB NOR Markets, Company Note: Reported EBITA and EBIT are before unallocated expenses (eliminations)

Reporting dates for Keppel’s listed subsidiaries

Company BB ticker Industry KEP stakeAccounting

method % of NAVReporting

dateReporting

periodK-REIT KREIT SP Commerical property trust 30% Equity method 3% 17-Oct Q3K-Green Trust KGT SP Infrastructure trust 50% Equity method 2% 17-Oct Q3KTT KPTT SP Telecommunication 80% Consolidation 3% 18-Oct Q3Keppel Land KPLD SP Diversified property 53% Consolidation 13% 19-Oct Q3 Source: DnB NOR Markets, Company

Order book quality As highlighted previously, examining and monitoring the quality of the order book is a prerequisite, particularly in choppy markets where down-markets heighten the possibility of payment delays and even order cancellations, in a worst-case scenario. In Keppel’s case, after expounding on the existing order



17.10.2011

book, the value of orders arising from less-established players (we classify as without an operating track record) accounts for SGD1.7bn, or 17% of the total order backlog. In a worst-case scenario, if these orders were cancelled, we argue that Keppel has the balance sheet (net gearing 0.1x) and resources to finance the orders as a stop-gap measure.

Existing order book of SGD10.4bn

Date ordered Unit typeNo of unit Type Client Value Currency

Expected delivery SGDm USDm

Estimated progress of completion

(%)

Estimated value left (SGDm)

% breakdown

1-Nov-2007 Super 116E jackup 4 Jackup Rowan 780 USDmQ22010 to

Q42011 1178 780 95% 59 0.60%6-Jun-2008 B class jack-up 1 Jackup Seadrill 210 USDm Q22010 317 210 100% 0 0.00%

25-Feb-2010 Semi upgrading and repairs 2 Semi Stena Drilling 40 SGDm Q22010 40 29 100% 0 0.00%19-Nov-2007 Newbuild accomodation semi-sub vessel 1 OSV Floatel 206 USDm Q22010 311 206 100% 0 0.00%1-Feb-2008 FPSO conversion 1 FPSO Maersk Drilling 105* SGDm Q32010 105 72 100% 0 0.00%6-Jul-2007 Ultra-deepwater semi-sub drilling rig 8503 1 Semi ENSCO 427 USDm Q32010 645 427 100% 0 0.00%

19-Nov-2008Fabrication, installation and integration of topside process modules for a FPSO 1 FPSO SBM Offshore 100* SGDm Q32010 100 69 100% 0 0.00%

15-Feb-2007 KFELS N class jackup 1 Jackup Skeie Drilling & Production (now Rowan) 392 USDm Q42010 592 392 100% 0 0.00%29-Dec-2008 FPSO upgrading and conversion 1 FPSO Single Buoy Moorings 150* SGDm Q42010 150 103 100% 0 0.00%8-Feb-2010 Newbuild ASD tugboat 1 OSV PT Pelayaran 30 SGDm Q42010 30 21 100% 0 0.00%25-Jun-2007 KFELS N class jackup 1 Jackup Skeie Drilling & Production (now Rowan) 400 USDm Q22011 604 400 100% 0 0.00%6-Jun-2008 B class jack-up 1 Jackup Seadrill 210 USDm Q42010 317 210 100% 0 0.00%

10-Dec-2009 FPSO upgrading and conversion 1 FPSO EOC 75 USDm Q42010 105 75 100% 0 0.00%7-Jun-2008 Semi-sub drilling tender 1 Semi Seadrill 160 USDm Q12011 242 160 100% 0 0.00%

18-Oct-2007 Newbuild Azimuth Stern Drive tugs 6 OSV Smit Internationale 80* SGDm Q12011 80 55 100% 0 0.00%25-Nov-2009 Pre-conversion of P-58 FPSO 1 FPSO Petrobras Netherlands 120 SGDm Q12011 120 86 100% 0 0.00%8-Feb-2010 Newbuild ASD tugboat 1 OSV Smith Int 30 SGDm Q12011 30 21 100% 0 0.00%6-May-2008 Ultra-deepwater semi-sub drilling rig 8504 1 Semi ENSCO 512 USDm Q22011 773 512 100% 0 0.00%7-May-2008 Newbuild derrick pipelay vessel 1 OSV Global Offshore 90* SGDm Q22011 90 62 100% 0 0.00%25-Feb-2010 FPSO upgrading and conversion 1 FPSO Bumi Armada 100 SGDm Q22011 100 71 100% 0 0.00%24-Feb-2010 FPSO upgrading and conversion 1 FPSO SBM Offshore 120 SGDm Q32011 120 86 100% 0 0.00%23-Nov-2009 Tender assist semi drilling rig 1 Semi PV Drilling 200 USDm Q42011 280 200 85% 42 0.43%8-Feb-2010 Newbuild rock dumping fallpipe vessel 1 OSV Royal Boskalis 80 SGDm Q42011 80 57 85% 12 0.12%1-Jun-2008 Ultra-deepwater semi-sub drilling rig 8505 1 Semi ENSCO 537 USDm Q12012 811 537 85% 122 1.25%

13-Aug-2008 Ultra-deepwater semi-sub drilling rig 8506 1 Semi ENSCO 560 USDm Q22012 846 560 82% 152 1.56%

23-Nov-2009 Repair and upgrading 2 Drillship Noble 304 USDmQ42011-Q22012 426 304 85% 64 0.65%

27-Jan-2010 B class jack-up 1 Jackup Saudi Aramco 200 USDm Q22012 280 200 70% 84 0.86%22-Dec-2009 Repair and upgrading (cancelled) 1 Drillship Noble 152 USDm Q22013 213 152 32% 0 0.00%24-Feb-2010 Livestock carrier conversion 1 Others Hijazi 40 SGDm Q32010 40 29 100% 0 0.00%24-Jun-2010 3x newbuild barges + 1x drillship upgrade 4 OSV PT Mitra and PT Pelayaran 50 SGDm Q12011 50 36 100% 0 0.00%21-Jul-2010 FPSO conversion 1 FPSO SBM Offshore 150 SGDm Q12012 150 107 80% 30 0.31%21-Jul-2010 Semi repair 1 Semi QGOG 20 SGDm Q32010 20 14 100% 0 0.00%

18-Aug-2010 FPSO modification 1 FPSO OSX 50 SGDm Q22011 50 38 100% 0 0.00%30-Sep-2010 Semi completion - Scarabeo 9 1 Semi Saipem 90 USDm Q32011 120 90 100% 0 0.00%30-Sep-2010 Semi upgrading and repairs 1 Semi ENSCO 11 USDm Q22011 15 11 100% 0 0.00%25-Nov-2010 KFELS B class jackup 1 Jackup Standard Drilling 180 USDm Q22012 234 180 35% 152 1.56%

2-Dec-2010 KFELS B class jackup 2 JackupMermaid Maritime (Spins off drilling arm Asia Offshore Drilling) 360 USDm

Q4-Q1 2012-2013 468 360 10% 421 4.31%

22-Dec-2010 KFELS B class jackup 1 Jackup Jasper 180 USDm Q22012 234 180 35% 152 1.56%27-Dec-2010 FPSO upgrading and conversion 1 FPSO SBM Offshore 160 SGDm Q12012 160 123 55% 72 0.74%27-Dec-2010 Livestock carrier conversion 1 Others Hijazi & Ghosheh 30 SGDm Q22011 30 23 100% 0 0.00%27-Dec-2010 Diving support vessel 1 OSV Malaysian owner 50 SGDm Q22012 50 38 65% 18 0.18%

23-Jan-2011 KFELS B class jackup 2 JackupClearwater (ownership in process to be changed to Standard Drilling) 360 USDm Q1-Q22013 468 360 5% 445 4.55%

25-Jan-2011 KFELS Super A class jackup 2 Jackup Hercules (Discovery Offshore) 416 USDm Q1-Q22013 541 416 0% 541 5.54%

10-Feb-2011 KFELS Super A class jackup 2 Jackup ENSCO 440 USDm Q2-Q42013 563 440 0% 563 5.76%13-Feb-2011 FPSO topside 1 FPSO SBM Offshore 191 SGDm Q42012 191 149 5% 181 1.85%

13-Feb-2011 FPSO topside 1 FPSO MTOPS 191 SGDm Q42012 191 149 5% 181 1.85%

15-Feb-2011 Gusto MSC CJ70 150MD Jackup 2 Jackup Maersk Drilling 1000 USDmQ42013-Q22014 1281 1000 0% 1281 13.11%

17-Feb-2011 KFELS Super B class Bigfoot jackup 2 Jackup Transocean 380 USDm Q3-Q42012 485 380 0% 485 4.97%7-Mar-2011 Letourneau Super 116E jackup 1 Jackup Perforadora Central 195 USDm Q12013 250 195 0% 250 2.55%

10-Mar-2011 Completion of pipelaying newbuild vessel Castorone 1 OSV Saipem 120 SGDm Q22012 120 94 0% 120 1.23%10-Mar-2011 FSO conversion 1 FPSO Bumi Armada 50 SGDm Q42011 50 39 0% 50 0.51%15-Mar-2011 KFELS Super B class jackup 1 Jackup Japan Drilling 210 USDm Q12013 269 210 0% 269 2.75%3-Apr-2011 KFELS B class jackup 1 Jackup Jasper 180 USDm H12013 227 180 0% 227 2.32%12-Apr-2011 Multi-purpose dive support construction vessel 1 OSV SBM Offshore 190 SGDm Q22013 190 151 0% 190 1.94%12-Apr-2011 FPSO conversion 1 FPSO Petrofac 50 SGDm Q32011 50 40 0% 50 0.51%

5-May-2011 KFELS Mod V B class Bigfoot jackup 2 Jackup Gulf Drilling International 380 USDmQ32013, Q32014 467 380 0% 467 4.78%

15-May-2011 KFELS B class jackup 4 Jackup Standard Drilling 772 USDm2H2013 - 1H2014 965 772 0% 965 9.88%

23-May-2011 KFELS B class jackup 1 Jackup Vision Drilling (100% subsd of Dynamic Offshore Drilling) 180 USDm Q12013 225 180 0% 225 2.30%9-Jun-2011 SSDT 3600E drilling tender rig semi 1 Semi Seadrill 142 USDm Q22013 175 142 0% 175 1.79%13-Jun-2011 SSAU 4000NG accomodation semi 1 Semi Floatel 260 USDm Q12014 322 260 0% 322 3.30%29-Jun-2011 45-tonne bollard pull harbour tugboats 6 OSV Smit Internationale (SMIT REBRAS) 72 SGDm Q42012 72 59 0% 72 0.74%3-Jul-2011 KFELS B class jackup 1 Jackup Asia Offshore Drilling (co with Seadrill and Mermaid) 184 USDm Q32013 226 184 0% 226 2.32%4-Aug-2011 FPSO conversion 1 FPSO SBM Offshore 126 SGDm Q22013 126 104 0% 126 1.29%

4-Aug-2011Fabrication, installation and integration of external turret mooring for FPSO Rubicon Intrepid 1 Others Rubicon Offshore 20 SGDm Q42011 20 17 0% 20 0.20%

5-Aug-2011 KFELS B class jackup 1 Jackup Transocean 195 USDm Q32013 236 195 0% 236 2.42%

29-Sep-2011 Conversions of FSU, FSO, FPSO 3 FPSO Various (MISC, Bumi Armada, Dixstone) 142 SGDmQ22012-Q42012 142 109 0% 142 1.45%

4-Oct-2011 KFELS B class jackup 1 Jackup Safin Gulf FZCO 199 USDm Q32012 262 199 0% 262 2.68%7-Oct-2011 KFELS Super A class jackup 1 Jackup ENSCO 245 USDm Q32014 319 245 0% 319 3.26%Sub-total 9769 100.00%

Total backlog 9769 100.00%1-Feb-2010 P-61 TLWP - equity acccounted, KEP's share 1 TLWP Petrobras 840 SGDm 2012 840 600 56% 366

23-Mar-2010 Windfarm platform - equity accounted, KEP's share 1 Platform Wetfeet 71 SGDm Q42011 71 5 70% 2129-Jun-2011 Platform Supply Vessel MTD 9045P-DE (4500dwt) 1 OSV GNL (Keppel O&M's Shipowning arm in Brasil) 68 SGDm 2013 68 55 0% 6813-Sep-2011 Heavylift sheerleg crane vessel - JV Asian lift 1 OSV Asian Lift (JV with SMIT) 143 SGDm Q32013 143 110 0% 143

Total backlog including JV orders 10368 Source: Company, DnB NOR Markets



17.10.2011

Valuation and recommendation SOTP suggests upside potential We value Keppel using a SOTP valuation, driven largely by the marked-to-market values of listed entities and DCF valuation of the O&M business. In our O&M valuation, we model long-term annual order intake of SGD4.7bn and an EBITDA margin of 14%.

We reiterate our BUY recommendation with a SOTP-based target price of SGD10.

SOTP valuation of SGD10.13

SOTP Valuation - segment breakdownNAV

(SGDm)% of NAV

Exlc cash* Method

1) Keppel Offshore and Marine 8,703 48% 46% DCF

2) PropertyListed:Keppel Land (KPLD SP, 52% owned) 2,104 12% 11% Listed market valueKREIT (KREIT SP, 30% owned) 415 2% 2% Listed market value

3) InfrastructureUnlisted: KIE 1,374 8% 7% P/B 2xListed:KTT (KPTT SP, 80% owned) 534 3% 3% Listed market valueGreen Trust (KGT, 49% owned) 282 2% 1%

4) InvestmentsListed:K1 Ventures (KONE SP, 36% owned) 80 0% 0% Listed market valueDyna-Mac (DMHL SP, 28% owned) 111 1% 1%

Floatel International (FLOAT NO, 31.7% owned) 130 1% 1%Before amalgamation offer is concluded

5) Unlisted value of subsidiaries net of O&M & Infrastr. 1,576 9% 8% Book value 6) Unlisted value of associates 2,415 13% 13% 2.5x PB7) Adjusted net interest-bearing debt (NIBD) -312 2% na Adj for NIBD of min.

NIBD 955 Q2 2011NIBD of minorites 1,266 Q2 2011

Total equity value 18,038 100%Total no of outstanding shares 1780Total equity value per share 10.13

SSource: DnB NOR Markets estimates Note *Excluding cash: % of assets excluding NIBD/cash

Trough scenario In a trough scenario, the share price could fall to SGD5.87 based on a 1.3x trough P/B (in Q4 2008) on 2011e estimates. We use P/B as the benchmark given Keppel’s asset-heavy business in the property and infrastructure segments. We cannot rule out 33% downside in such a scenario, but we do not consider it likely.



17.10.2011

Market outlook – new orders Newbuild activity remains healthy; but slower than expected Although newbuild activity is expected to slow, it should remain high in the jack-up and deepwater floaters segments. Our view is that newbuild activity will remain high, but that the pace will be slower than in recent quarters due to macro factors (such as potentially tighter financing).

We believe that robust activity and tightening of the ultra-deepwater (UDW) space could result in new ordering activity in the medium to longer term. This would be a positive trigger for both Keppel and SMM, as they have seen limited deepwater new orders this cycle, with most drillship orders going to the Koreans. We now see a greater chance that deepwater semi-sub drilling rig orders will return and believe that the Singapore rig builders will be well-positioned for them.

Premium jack-up remains tight Premium jack-up utilisation of 96% is very tight, compared to 78% in August 2009. Contract coverage in 2013e is expected at 38%, which is relatively decent given the new jack-ups coming into the market and the shorter contract length of jack-ups (shorter time to drill shallow-water wells).

UDW ordering activity Dissecting the newbuild cycle since October 2010, we see that the 41 UDW floaters ordered recently include 7x drillships by Petrobras, 5x semis (2x cat-D Statoil, 2x Sevan). Excluding these, there are 29 drillships being placed. We expect most of these drillships (at least 21) to go to Brazil due to its delayed newbuild programme. Hence, the UDW market is far from overcrowded. In fact, with the ultra-deepwater market characterised by superior visibility and higher dayrates, we expect newbuild ordering activity in the UDW to come back.

Return of deepwater rig orders is the price trigger The key takeaway from our recent trip to Houston to meet 15 oil service companies was that they remained highly optimistic that dayrates would continue to move higher. Optimism is particularly high in the ultra-deepwater segment.

Also, activity in the US GoM is set to move higher. In the aftermath of the Macondo incident in the US GoM last April, we have seen increased demand for premium equipment, from both oil and rig companies. There has been a significant increase in enquires and early-stage tenders for ultra-deepwater capacity in recent weeks for the US GoM. We expect several awards ahead.

Following recent updates with various industry participants, it is evident that there continues to be an increase in number of ultra-deepwater requirements coming to the market. Just over the past few weeks, we have seen incremental demand in West Africa, East Africa and South East Asia, in addition to the positive trend in the US GoM.

This supports our view that 2012 ultra-deepwater will soon be very tight and we are likely to see several contract announcements in the coming months. It is also positive that, in enquires, durations are starting to get longer.

Economics attractive at current newbuild price At current dayrates, the economics also look good for newbuilds, in particular ultra-deepwater units, with rates in the mid- to high-USD400k, i.e. above the level needed for a reasonable return on a newbuild today. We estimate that a dayrate in the low USD400k gives a 10% return on total capital, which translates into a 22% return on equity assuming 70% leverage and a cost of debt at 5%. Hence, we view the risk/reward on new rig orders at the current rate as attractive given the potential return.

Potential demand for high-spec jack-ups with new Aldous find Statoil recently announced a mega find, the Aldous Major South discovery in the North Sea, which is estimated to hold 400m–800m barrels of oil equivalent and could be the world’s largest offshore oil find this year. We believe it could add to demand for harsh-environment jack-ups, such as the Gusto MSC CJ70 and Friede and Goldman JU3000N models that have been popular among operators in the North Sea (e.g. Noble Drilling, Seadrill).

UDW market getting very tight, new orders made in this cycle are far from overcrowding the market

Potential return of UDW rig orders a strong trigger for Singapore yards

Activity in US GoM returning – strong market support for UDW activity, especially for semi drilling



17.10.2011

Mid-water semis also high Rig owners commented in recent results briefings that they were seeing an increasingly tight market for mid-water floaters, particularly in the North Sea. Tendering activity here has also picked up of late, with the bulk of new tenders focused in regions such as the North Sea, India and South East Asia. Together, we believe higher activity, tight supply, and new finds (Aldous Major and Avaldsnes discoveries in NCS) could provide the catalysts for an order revival for mid-water harsh-environment semis for Singaporean yards.

Petrobras tender update The Petrobras newbuild rig tender for the remaining 21 rigs has opened in Brazil, in line with expectations that it would close in September. The structure is largely unchanged from previous updates that Petrobras would charter the rigs from Sete and its JV partners or with drilling contractors, which would build the rigs with partnered yards.

Keppel is in the running for six semi-sub rigs (indicative pricing USD800m each).

From the opened bids below, we believe Keppel stands a very good chance of winning 3-4 orders. However, we reiterate the bids are not solely judged by the rate and mobilisation level. There are Net present value considerations in addition to adjustments for technical specification.

We are unable to quantify the valuation impact at this time due to the limited information on rig pricing and terms. And as stated before, potential orders from this tender has not been factored into our model. The orders (if they are semis) may offer a better risk/reward for Keppel as it could leverage on its existing and expanded facilities at Keppel Brafels, which specialises on semi production platforms.

However, we reiterate that building UDW newbuilds in Brazil to meet local content requirements is challenging for yards, due to the lack of existing infrastructure and skilled labour. We would be positive if these contracts were not entirely turnkey-based and have cost escalation clauses that offer some downside protection to the yard. See report dated 4 October for more details.

Bids of 21 rigs tender and our expectations about yard and equipment Drill-ships in JVs with SETE (1.5 derrick)Bidder Day-rate (USD) Mobilization (USD) Likely yard Likely design Likely topside Likely riser Likley BOPEtesco 604,857 31,551,132 Engevix* Gusto P12000 NOV NOV NOVEtesco 604,737 32,118,979 Engevix* Gusto P12000 NOV NOV NOVEtesco 611,797 28,075,235 Odebrecht yard * LMG Marin Aker Aker or Cameron CameronEtesco 609,537 29,288,232 Odebrecht yard * LMG Marin Aker Aker or Cameron CameronEtesco 605,467 28,822,282 Engevix* Gusto P12000 NOV NOV NOVOdebrecht 619,717 28,408,239 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 618,597 29,370,610 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 621,747 29,922,686 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 620,737 30,648,032 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdjfell-Galvao 625,277 28,510,902 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronOdjfell-Galvao 627,387 29,604,509 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronOdjfell-Galvao 630,467 30,627,974 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronSeadrill 628,397 29,003,515 Jurong LMG Marin NOV NOV NOVSeadrill 629,507 30,070,952 Jurong LMG Marin NOV NOV NOVSeadrill 630,587 31,054,485 Jurong LMG Marin NOV NOV NOV* Etesco has bid 3 units at Engevix and 2 at Odebrecht, uncertain which rig is at what yard

Semis in JV with SETEOdebrecht 618,057 32,381,368 Keppel FELS DSS 38E NOV NOV NOVPetroserv 620,817 29,803,804 Keppel FELS DSS 38E NOV NOV NOVPetroserv 626,397 31,094,654 Keppel FELS DSS 38E NOV NOV NOVQueiroz 616,387 30,530,586 Keppel FELS DSS 38E NOV NOV NOVQueiroz 623,937 31,679,166 Keppel FELS DSS 38E NOV NOV NOVQueiroz 612,607 29,129,291 Keppel FELS DSS 38E NOV NOV NOV

Drill-ships (dual activity)Ocean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOV Source: Petrobras, DnB NOR Markets

Recent new order wins, not all gloomy Keppel has announced a couple of contracts over the past two months, despite macro weakness. In August, Transocean exercised an option (with



17.10.2011

remaining two options) worth USD195m (SGD236m) to build a Super B Class high-spec jack-up at Keppel FELS. And the day before, Keppel won SGD146m worth of new FPSO-related contracts from SBM and Rubicon. These were followed by SGD142m worth of production-related conversion orders in late September. In early October, it announced a USD199m (SGD262m) Class B jack-up drilling rig order (we believe to upgrade former West Atlas rig) from Safin Gulf FZCO. We are positive on this contract, as we believe Keppel has purchased the ex-West Atlas rig at an attractive price.

Outstanding options, extensions or lapsing can be expected We expect the extension of options or lapsing of options in the current macro situation. However, we remain comfortable in our base-case that three of the existing six options will turn firm this year or early next year. As mentioned in an earlier note, AOD announced in late September that it had decided not to exercise its remaining newbuild jack-up option (due on 30 September, estimated exercise price USD180m) at Keppel. It was not unexpected even though the option pricing was attractive. Given the current uncertainty in the financial market, it is natural for AOD to focus on securing the remaining funding and contracts for its three existing newbuilds at Keppel and not take up additional financing risk by ordering a fourth rig.

And we have also seen an option being exercised. In early Oct, Ensco's decision to exercise its newbuild Class A jack-up newbuild option is viewed as positive on the 1) pricing (11% higher than Feb's orders), 2) rising market values (option should be in-the-money to warrant exercise), 3) confidence (provides support in current market); and 4) supports our view that the outlook of the high-spec/premium jack-up market remains positive. Pricing is higher than Feb's orders. The price of USD245m is 11% (13% in SGD terms) higher than the USD220m per rig price that Ensco ordered for two Class A jack-ups in Feb 2011. Option price, in theory, should be in-the-money for Ensco to exercise the option. We argue that current market pricing for Class A jack-up newbuild (due delivery 2014) would be higher than USD245m in order to entice Ensco to exercise this option. For the remaining option, Ensco has let the option expired, which we believe the key reason is on risk management from the company's perspective.

And next year, we believe Maersk is likely to exercise its outstanding CJ70 jack-up (estimated price at least USD500m), given the recent development that Maersk is targeting the Statoil's Cat J initiative. We can also expect a slight change in variation order for this unit, as Maersk is believed to be looking at an even larger unit CJ80, capable of drilling water depth of 540-550ft and larger drilling capacity.

Cycle is not over yet, in our view We have not been expecting a super-cycle in orders for the yards, but rather given the fall in yards’ share prices we see a divergence between what the market is discounting and the current cycle. We argue that the oil & gas cycle is longer-term and that oil companies look beyond short-term volatility, as pointed out in our market outlook.

YTD Keppel has secured close to SGD8.6bn of new orders, significantly outperforming its closest competitor SMM’s SGD2.8bn. In our opinion, Keppel will not be desperate for new orders if the pricing is not ideal, and would rather focus on executing the existing backlog.

We expect H2 2011 rig ordering momentum to slow, but we argue that the order rate should still be decent with upcoming tenders.

Our base-case scenario assumes the O&M cycle normalises, with sufficient demand to fill the slots at top-end yards. SMM and KEP are the top rig builders in this market, in our opinion, and we believe they are in a good position to maintain market share in the rig building segment of jack-ups and semis.



17.10.2011

Upcoming potential new order tenders Bid status Project Client Contenders

Bids submittedBrazil flexible pipelaying vessels (up to 6, packages for 1 or 2 vessels) Petrobras

STX Brazil, Jurong, Keppel, SHI, DSME, Metalships&Docks, SapuraCrest

Pre-Qualification exercise to begin in Jul or Aug FPSO Husky

Jurong, Keppel, COOEC/Chinese yards with FPSO specialist

Tender opened (please see separate update)

Petrobras newbuild drilling rigs orders - 21 drilling rigs - Keppel likely to go for semis

Petrobras/ SPV Sete Brasil Sempcorp, Keppel, EAS, Alusa Olvano, Etesco

No disclosure of bidding dates or how the contract winner will be decided

Completion of fabrication and commisioning of a pipelay vessel from CIMC Acergy

Sembawang, Keppel FELS (preferred), Dubai Drydocks

Potential interest, tendering not out yet 5 jackups Saudi Armaco Open (KEP likely to participate)

Potential interest, tendering not out yet 2 jackups CSMC Open (KEP likely to participate)Potential interest, tendering not out yet 1 jackup (CJ70) Rowan Open (KEP likely to participate)

Potential interest, tendering not out yet

1 jackup (Friede & Goldman Super M2 or LeTourneau Super 116E design preferred) Dragon Oil Open (KEP likely to participate)

Potential interest, tendering not out yet 2 semis European Open (KEP likely to participate)Qualified biddders invited - operators and yards Semi production unit Inpex Open (Keppel is likely to partner operators)Potential interest, tendering not out yet 1 540-550ft CJ80 jack-up (large unit) Maersk Open (Keppel is likely to participate)Potential interest, tendering not out yet Cat J drilling semis Statoil Open (Keppel is likely to participate) Source: Upstream, Company, DnB NOR Markets

New orders: estimates and orders secured historically

In SGDm (keppel) 2006 2007 2008 2009 2010 2011 ytd 2011E 2012E 2013ENew orders (announced, including JV) 7,300 7,345 5,850 1674 3211 8,643 na na naSemis/drillship related orders 2,920 3,505 3,271 1,060 134 175 1,500 2,250 2,250Jack-up orders 3,650 2,204 1,544 0 1,216 6,783 7,005 2,100 1,800OSV orders 200 1,028 230 50 140 593 350 240 240Conversions, production, platforms and others orders 530 608 805 564 810 1,092 780 780 1,080JV orders (not consolidated), KEP's share - - - - 911 - - - -Total estimated orders (excluding repair & JV) 7,300 7,345 5,850 1,674 2,300 8,643 9,635 5,370 5,370 Source: DnB NOR Markets

Outstanding rig options at Keppel and our base case for them to be exercised this year

Date Client Rig typeNo of units

Est value per unit (USDm)

Total value

(USDm)Total value

(SGDm) Remarks25-Jan-2011 Discovery Offshore KFELS Super A class jackup 2 208 416 508 Both expiring in Oct 201110-Feb-2011 ENSCO KFELS Super A class jackup 0 245 245 299 1 options excerised and 1 expired

15-Feb-2011 Maersk Drilling Gusto MSC CJ70 150MD Jackup 1 500 500 610 Expect this to be exercised in 2012

17-Feb-2011 Transocean KFELS Super B class Bigfoot jackup 2 190 380 464 2 options likely to be exercised

23-May-2011 Vision Drilling KFELS B class jackup 1 180 180 225 Expect this to be exercised in Q4 2011Total 6 1721 2105 1 option has lapsedOur base case for 2011e/ early 2012e 3 560 683 No of options we expect to turn firm Source: DnB NOR Markets, company

Replacement ratio of new order intake to revenues (SGDm)

2006 2007 2008 2009 2010 2011 ytd 2011E 2012E 2013ERevenues O&M (excluding est shiprepair) 4858 6178 7776 7337 4705 2,241 4709 5813 5744O&M new order intake 7,300 7,345 5,850 1,674 3,211 8,643 9,635 5,370 5,370Ratio of order intake to revenues booked - replacement ratio 1.5 1.2 0.8 0.2 0.7 3.9 2.0 0.9 0.9

Historical 5-year revenue replacement ratio 0.93-year forward replacement ratio based on our estimates 1.3 Source: Company, DnB NOR Markets



17.10.2011

KEPPEL CORP (KPLM.SI)

PROFIT & LOSS SGDm 2008 2009 2010 2011e 2012e 2013eRevenues 11,805 12,247 9,783 9,467 11,077 11,519Other income 0 0 0 0 0 1Operating costs 10,428 10,568 7,838 7,702 9,423 9,825EBITDA 1,378 1,679 1,945 1,765 1,654 1,694Depreciation & amortisation 139 174 189 202 210 225EBIT 1,238 1,505 1,756 1,563 1,444 1,469Associated companies 366 327 215 241 297 298Net interest -8 24 55 2 15 39Other financial itemsExtraordinary items 13 322 661 0 0 0Pre-tax profit 1,609 2,178 2,687 1,805 1,756 1,806Tax 288 348 581 308 299 307Minority interest 223 205 484 202 220 241Net profit 1,098 1,625 1,623 1,294 1,237 1,258

BALANCE SHEET SGDmIntangible assets 78 90 108 108 108 108Operating assets 5,078 5,208 5,451 6,122 6,550 7,017Associated companies 3,201 2,723 3,607 3,607 3,607 3,607Other current assets 5,846 5,650 7,242 5,455 6,493 6,752Cash & cash equivalents 2,245 2,936 4,246 5,137 5,273 5,984Total assets 16,746 17,307 20,981 21,128 22,731 24,167Equity & minority interest 6,749 8,713 9,724 11,221 12,678 14,177Interest bearing debt 1,942 1,758 4,068 3,868 3,568 3,268Non interest bearing debt 8,056 6,837 7,190 6,040 6,485 6,722Total liabilities & equity 16,746 17,307 20,981 21,128 22,731 24,167Net interest bearing debt -302 -1,178 -178 -1,270 -1,705 -2,717

CASH FLOW SGDmCash earnings 2,036 1,531 2,691 1,476 1,667 1,724Working capital 797 -592 -1,699 859 -593 -22Investments -285 -240 -961 -1,244 -638 -691Debt -288 -185 2,310 -200 -300 -300Equity/dividends -1,019 -1,527 0 0 0 0Change in cash & liquids 1,241 -1,013 2,341 891 136 711

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS SGD 0.69 1.02 0.91 0.74 0.70 0.71EPS adj SGD 0.69 0.82 0.80 0.73 0.70 0.71Dividend ps SGD 0.35 0.61 0.42 0.42 0.42 0.42Book per share SGD 4.24 5.48 5.46 6.30 7.12 7.96Year end shares Millions 1,592 1,590 1,780 1,780 1,780 1,780Price SGD 3.94 7.48 10.29 8.70 8.70 8.70P/E X 5.7 7.3 11.3 11.7 12.5 12.3P/E adj X 5.7 9.1 12.9 12.0 12.5 12.3Dividend yield % 8.9 8.2 4.1 4.8 4.8 4.8P/Book X 0.9 1.4 1.9 1.4 1.2 1.1EV/EBITDA adj X 2.0 4.8 7.5 6.0 6.2 5.4EV/EBIT adj X 2.2 5.3 8.3 6.8 7.0 6.2EV/Cap employed X 0.4 1.0 1.3 0.9 0.8 0.7EV/Sales X 0.5 0.9 1.9 1.5 1.2 1.1

Share price and targetPrice SGD 8.70Price target 12m SGD 10.00Recommendation BUYKey data per shareBook value SGD 5.46P/Book X 1.59EPS gr10-13e %cagr -3.9%Sales gr10-13e %cagr 5.6%PE11e/EPS gr X -3.0Financial structureMarket cap. SGDm 15,489Net int. bear debt SGDm -178.3Enterprise value SGDm 15,310Shares outst. Millions 1,780Equity/tot assets % 38.0Share price performanceAbs. 1/3/12m 2/-19/-2Rel. 1/3/12m 2/-8/12High/Low 12m SGD 12/7STI index 2734.030days volatility % 47Company attributesReuters ticker KPLM.SIEnergy

ReportingQ3 2011

ManagementCEO Choo Chiau BengCFO Teo Soon HoeAddressKeppel Corp1 HabourFront AvenueFloor 18-01H.p.: www.kepcorp.comTel +65 6270 6666




17.10.2011

70

80

90

100

110

120

130

140


Keppel Corp


95

100

105

110

115

120

125

130


Keppel Corp


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2008 2009 2010 2011e 2012e 2013e-30%

-20%

-10%

0%

10%

20%

30%

40%

50%



0.00

0.20

0.40

0.60

0.80

1.00

1.20

2007 2008 2009 2010 2011e 2012e 2013e0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

500

1,000

1,500

2,000

2,500

2007 2008 2009 2010 2011e 2012e 2013e0.0%

5.0%

10.0%

15.0%

20.0%

25.0%



0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011e 2012e 2013e0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%10.0%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%

30%

35%

Price/Book ROE

ROEPrice/Book



17.10.2011

Kreuz Holdings (BUY, TP SGD0.45) Set to benefit from upcoming subsea tenders in Asia Kreuz provides subsea support services to the offshore oil & gas industry, focusing primarily on activities supporting new offshore installation and construction projects, as well as inspection, repair and maintenance (IRM) of existing production and pipeline facilities. Before the IPO in July 2010, Kreuz was a wholly owned subsea service unit of Swiber.

Kreuz functions as a subcontractor, performing subsea services through air-diving and saturation diving operations. Key customers – through main contractors such as Swiber – include Brunei Shell Petroleum, British Gas India, Reliance, ConocoPhilips, Alam Maritim, and Petronas.

It has an outstanding order backlog of USD156m before Q3 recognition.

Divisions • Subsea construction and installation. Provides installations of

pipeline, jacket, riser, spool, remote shutdown valves, decommissioning of platforms, subsea tie-ins and undertakes projects for the stabilisation of pipelines and risers.

• Inspection, repair and maintenance (IRM). Provides services such as subsea support and survey for the stabilisation of existing pipelines, cables, flexi flowlines and risers for remedial purposes. It also provides testing (damage and stability assessments) of offshore structures and pipelines, repair and remedial works on problems reported during inspection surveys.

Assets • 2x accommodation diving support vessels: Swiber Glorious and Swiber

Supporter. • 1x K-SAT saturation diving system. • 6x air diving systems.

Recent developments • New contracts worth USD100m secured YTD, comprising subsea

installations, diving support and IRM services in South East Asia and India.

Expected newsflow • Q3 results, which are due out in mid-November. • Potential diving support vessel, diving system, ROV acquisitions. • Potential subsea contract wins.

Valuation Given Kreuz’s small fleet (two vessels), we use a DCF to value the company. Based on this (which is driven by earnings from the existing order backlog and projected contract wins), we value Kreuz at SGD0.46 per share and a target price of SGD0.45. We reiterate our BUY recommendation.



17.10.2011

Q3 preview We expect Kreuz to report its Q3 results in mid-November.

We expect no major earnings surprises, and margins will be the key swing factor again, i.e. project execution on the current USD146m backlog. Margins have beaten our forecasts for the past four quarters.

Current backlog to drive earnings, margins are the key swing factor We expect Q3 revenues of USD29m, EBITDA of USD9m, EBIT of USD8m, and net income of USD7m. We forecast a Q3 EBITDA margin of 30%, compared to the 33% average between Q3 2010 and Q2 2011.

Q3 preview USDm Q2/11 Q3/11E Q3/11E


Operating revenues 54.4 29.3 na 132 136 147EBITDA 18.3 8.9 na 43 37 37EBITDA margins 34% 30% 32% 27% 25%EBIT 16.6 8.4 na 39 33 33Net f inance -0.3 -0.3 na -1 -1 0Pretax earnings 16.3 8.1 na 38 33 33Net result 14.0 6.8 na 32 27 27

EPS 0.03 0.01 na 0.06 0.05 0.05


Source: DnB NOR Markets, Company

Orderbook status The current order backlog is USD146m. Swiber-related contracts account for 35% of the orderbook.

Existing subsea projects backlog

Location Scope of Work Client Contract period

Est outstanding

value (USDm)

Thailand Installation of jacket, pile, topside and pipelines Swiber 2009-2013 8Brunei Inspection, repair and maintenance services of offshore platforms Shell 2010-2014 51East Asia Subsea installation - Q22011-Q32011 2SEA and South Asia Subsea installation Swiber Q22011-Q22012 16Indonesia and Thailand Various subsea work - Q22011-Q32012 10Indonesia and Thailand Various subsea work Swiber Q22011-Q32012 27Middle East Subsea installation (Optional associated works worth USD10m not included yet) - Q32011-Q22012 25East Asia Subsea installation works - Q42011-Q22012 6Total outstanding backlog 146 Source: DnB NOR Markets, Company

New order assumptions We expect Kreuz to secure new orders worth USD131m for 2011e (USD100m secured YTD), USD170m for 2012e and USD175m for 2013e.

New order assumptions In USDm Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EHistorical/current orderbook at period end (USDm) 110 146 157 157 157 191 220New orders flow assumed/ secured (historical) 68.80 31.23 - 100.03 - -New EPCIC order assumptions 40 23 131 170 175 Source: DnB NOR Markets



17.10.2011

Valuation and recommendation Given Kreuz’s small fleet (two vessels), we use a DCF to value the company. Based on this (which is driven by earnings from the existing order backlog and projected contract wins), we value Kreuz at SGD0.46 per share. We reiterate our BUY recommendation.

DCF valuation – SGD0.46/share Discounted value of free cashflow Calculation of WACCValue free cashflow 2011-2035 (USDm) 191 Market value equity (2011) 129Value free cashflow 2035+ (USDm) 18 - in % 85%Total value free cashflow (USDm) 208 Net interest bearing debt (2011) 22Net debt 2010 (USDm) 22 - in % 15%Net value free cashflow (USDm) 186FCFE per share (USD) 0.37 Risk premium 9%Total value per share (SGD @USDSGD 1.24) 0.46 Beta 1.0

Upside/ (Downside) 52%Risk free rate 4%

Terminal Growth Assumptions Interest rate 5%Nominal growth year 2035+ 2.0% Tax-rate 17%Factor 10.5 Net WACC 12% Source: DnB NOR Markets Estimates



17.10.2011

KREUZ HOLDINGS (KRZL.SI)

PROFIT & LOSS USDm 2008 2009 2010 2011e 2012e 2013eRevenues 10 56 55 132 136 147Other income 0 0 0 0 0 0Operating costs -7 -42 -39 -90 -99 -109EBITDA 3 14 16 43 37 37Depreciation & amortisation 0 0 3 4 4 4EBIT 3 14 13 39 33 33Associated companies 0 0 0 0 0 0Net interest 0 0 0 -1 -1 0Other financial itemsExtraordinary items 0 0 0 0 0 1Pre-tax profit 3 14 13 38 33 34Tax 1 2 2 6 6 6Minority interest 1 4 1 0 0 0Net profit 2 8 8 32 27 27

BALANCE SHEET USDmIntangible assets 0 0 0 0 0 0Operating assets 1 2 92 92 92 92Associated companies 0 0 0 0 0 0Other current assets 10 32 40 73 76 81Cash & cash equivalents 0 2 11 21 37 51Total assets 11 35 144 188 207 227Equity & minority interest 3 19 85 116 143 171Interest bearing debt 0 0 33 28 18 8Non interest bearing debt 8 21 26 44 45 48Total liabilities & equity 11 35 144 188 207 227Net interest bearing debt 0 -2 21 5 -21 -46

CASH FLOW USDmCash earnings 2 12 12 35 31 31Working capital -2 -9 -6 -15 -1 -3Investments -1 -1 -93 -4 -4 -4Debt 0 0 33 -5 -10 -10Equity/dividends 0 0 0 0 0 0Change in cash & liquids 0 1 -55 11 15 14

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS USD 0.00 0.02 0.02 0.06 0.05 0.05EPS adj USD 0.00 0.02 0.02 0.06 0.05 0.05Dividend ps USD 0.00 0.00 0.00 0.00 0.00 0.00Book per share USD 0.01 0.04 0.17 0.23 0.28 0.34Year end shares Millions 427.0 427.0 507.0 507.0 507.0 507.0Price SGD 0.44 0.32 0.32 0.32P/E X 22.8 3.9 4.6 4.5P/E adj X 22.8 3.9 4.6 4.5Dividend yield % nm nm 0.0 0.0 0.0 0.0P/Book X 2.1 1.1 0.9 0.7EV/EBITDA adj X 12.6 3.0 2.8 2.1EV/EBIT adj X 15.2 3.3 3.1 2.3EV/Cap employed X 1.7 0.9 0.6 0.4

Share price and targetPrice SGD 0.32Price target 12m SGD 0.45Recommendation BUYKey data per shareBook value USD 0.17P/Book X 1.47EPS gr10-13e %cagr 53.1%Financial structureMarket cap. SGDm 159.7Market cap. USDm 124.6Net int. bear debt USDm 21.39Enterprise value USDm 146.0Shares outst. Millions 507.0Equity/tot assets % 61.7Share price performanceAbs. 1/3/12m -4/-22/-29Rel. 1/3/12m -1/-6/-16High/Low 12m SGD 0/0STI index 2133.630days volatility % 67Company attributesReuters ticker KRZL.SISupplySingapore

ReportingQ3 2011

ManagementCEO Kurush Phiroze ContractorCFO Kenny ZhangAddressKreuz Holdings12 International Business ParkFloor 02-02H.p.: www.kreuzsubsea.comTel +65 6505 0800




17.10.2011

6065707580859095

100105110115


Kreuz Holdings


90100110120130140150160170180190200


Kreuz Holdings


0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011e 2012e 2013e-50%0%50%100%150%200%250%300%350%400%450%500%



0.000

0.010

0.020

0.030

0.040

0.050

0.060

0.070

2007 2008 2009 2010 2011e 2012e 2013e0.00.10.20.30.40.50.60.70.80.91.0

EPS (USD) DPS (USD)

DPS (USD)EPS (USD)

0

5

10

15

20

25

30

35

40

45

2007 2008 2009 2010 2011e 2012e 2013e0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%



-100

-80

-60

-40

-20

0

20

40

2007 2008 2009 2010 2011e 2012e 2013e0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%



0.0

0.5

1.0

1.5

2.0

2.5

2007 2008 2009 2010 2011e 2012e 2013e0%

20%

40%

60%

80%

100%

120%

140%

160%

Price/Book ROE

ROEPrice/Book



17.10.2011

KS Energy (BUY, TP SGD1.22) Distribution business offers steady income stream KS Energy (KSE) is a leading one-stop energy services provider to the global oil & gas, marine and petrochemical industries. Core activities include distribution and capital equipment (jack-up drilling rigs, land rigs, liftboat) charter and services. In the distribution business, KSE ranks as one of the leading distributors of oil & gas equipment, spare parts, consumables and industrial products in the region. It holds sole distributorships in several well-established brands in the industry. KS Distribution (combination of Aqua-Terra and SSH) distributes more than 60,000 oil & gas related products comprising more than 140 international brands. In the capital equipment business, following the acquisition of Norway’s Atlantic Oilfield Services (AOS) in May 2007, KSE has the capability to supply and operate capital equipment, including onshore and offshore rigs. Integrating the twin capabilities of AOS and KSE’s drilling support teams, it can provide a full suite of services directly to oil & gas companies, tendering for drilling contracts in the market.

Divisions • Rig capital equipment (drilling) services. Provides onshore and

offshore drilling services by chartering its fleet of jack-ups, land rigs, and offshore services in accommodation jack-up and jack-up liftboat.

• Distribution services. Distributes more than 60,000 oil & gas related products, comprising more than 140 international brands.

Assets • Fleet of 3x jack-up drilling rigs, 1x jack-up drilling rig equipment, 1x

accommodation jack-up, 1x jack-up liftboat (50% stake), 8x land drilling rigs, and 2x newbuild jack-ups.

• Intangible – distribution rights and networks.

Recent developments • Entry into the Indonesia drilling market – on 21 July it secured a USD32m,

four-year contract to provide workover and well services to an undisclosed major, commencing end-September. On 12 July it partnered NOC-backed PT Pertamina Drilling Services in a USD98m, 42-month drilling deal, commencing Q3 2012e.

• On 14 July it announced its distribution segment had secured a SGD70m contract to supply components for the construction of two jack-up rigs. While details were not given, we believe the Chinese shipyard could be Cosco Shipyard, which is building two of KS’s LeTourneau Workhorse 240C class jack-ups ordered in May, scheduled for delivery in Q3 2013 and Q1 2014, respectively.

• KS secured a USD14m 1+1 year contract for the land rig KS Discoverer 3 with BP Pakistan E&P in late September.

Expected newsflow • Q3 results, which are due out in mid-November. • Further streamlining of fleet.

Valuation Our NAV is SGD1.22 per share. We reiterate our BUY recommendation and SGD1.22 target price.



17.10.2011

Q3 preview We expect KS Energy (KSE) to report its Q3 results in mid-November.

Earnings recovery expected in Q3 We expect Q3 to be up both QOQ and YOY, with revenues of SGD124m, EBITDA of SGD19m, net income of SGD5m, and EPS of 0.012. We expect the distribution business to provide a stable income source. In the capital equipment business, key focus is on the contracting status and overheads for the idling land rigs.



Operating revenues 122.8 123.5 na 0.7 1% 511 649 708 499 573 naEBITDA 10.9 18.6 na 7.7 70% 61 117 135 62 94 naEBITDA margin 9% 15% 12% 18% 19% 12% 16% -EBIT 2.2 9.9 na 7.7 347% 25 81 97 16 54 naNet f inance -3.8 -3.5 na 0.3 n.m -15 -15 -16 - - -Pretax earnings -0.9 8.2 na 9.1 n.m 11 72 88 1 40 naNet result -5.5 5.2 na 10.7 n.m -1 51 64 -3 27 na

EPS -0.013 0.012 na 0.0 n.m 0.00 0.12 0.15 -0.007 0.064 na

Full-year figures (DnB NOR) Consensus


Segment preview Revenue breakdown Q1/10 Q2/10 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EDistribution Business 63 94 77 126 360 89 83 95 115 381 462 485Drilling, Capital equipment and related services 57 46 26 21 150 25 36 29 35 124 188 224

EBITDA breakdownDistribution Business 6 8 7 13 33 8 8 9 10 35 43 45Drilling, Capital equipment and related services 14 5 1 3 23 1 3 10 11 26 74 90

EBIT breakdownDistribution Business 5 7 5 12 29 7 6 7 9 31 38 40Drilling, Capital equipment and related services 7 -4 -7 -6 -10 -6 -4 2 4 -4 43 56 Source: DnB NOR Markets Note: For quarterly results, KS provides a breakdown only of divisional revenues

Contract status of key capital equipment fleet Asset Name Asset Type Specifications Current Status Estimated

Dayrates (USD)

Contract Start

Contract End

KS Medstar I Jackup Rig Mitsui 200-C 45 design, 300ft, Built in 1980, 1.3m lbs

3+1y term charter with Petrobel off Egypt. Regular overhaul and maintenance scheduled for in Q2/Q3

Apr-08 Apr-12

KS Endeavor Jackup Rig Friede & Goldman Super M2, 300ft, Built in 2010, 1.6m lbs

2+1y bareboat Charter with Chevron off Nigeria, West Africa from Q4 2010

46,000 Jan-11 Dec-13

Atlantic Rotterdam Accom Jackup IHC Gusto BV, 250ft, Built in 1975 (Hull), Accom for 140 men

Went through maintenance and upgrades at the GDANSK Shipyard in Poland. Working on a 1+1y bareboat charter with Shell off the UK sector of the North Sea on the 1 August 2011.

23,800 Aug-11 Jul-13

Titan 2 (50-50 owned with Sinwa)

Liftboat 200ft, Built in 2008, 300ton lifting cranes 4+4+4mth Bareboat Charter with GMT Energy Resources (for ExxonMobil) off Nigeria, West Africa

26,300 Jan-11 Jan-12

Yu Song (equipment drylease) Jackup Rig 300ft, Built in 1976 7y bareboat charter of equipment rental with COSL off Bohai Bay, China

- Jun-05 May-12

KS Challenger 1 Land Rig Built in 2007, 1300HP Available for sale - - -KS Challenger 3 Land Rig Built in 2007, 1300HP Available for sale - - -Discoverer 1 Land Rig Built in 2008, 1500HP 2+1y term charter with GKPI Kurdistan in Kurdistan, Iraq 34,000 Aug-10 Aug-11Discoverer 2 Land Rig Built in 2008, 1500HP Charter with PERENCO Tunisia in Tunisia, Africa - Mar-11 Jun-11Discoverer 3 Land Rig Built in 2007, 1500HP Stacked in Karachi, Pakistan. Available for work - - -Discoverer 4 Land Rig Built in 2008, 2000HP 6+6mth charter with GKPI Kurdistan in Kurdistan, Iraq 36,000 Mar-11 Sep-11Indonesian newbuild 1 Land Rig Newbuild 5-year drilling contract with Chevron, DURI in Indonesia 18,500 Jun-11 Jun-16Indonesian newbuild 2 Land Rig Newbuild 5-year drilling contract with Chevron, DURI in Indonesia 18,500 Jun-11 Jun-16 Source: Company, DnB NOR Markets

Share price has held up better than peers KS shares are down 6.6% since the August sell-down, compared to its offshore Asian peers’ 34%. We believe the outperformance could be due to the recent takeover offer by management and relatively low trading volume.

Recent land rig contract positive on utilisation KS secured a USD14m 1+1 year contract for the land rig KS Discoverer 3 with BP Pakistan E&P in late September. This was positive, as the KS Discoverer 3 had been stacked in Pakistan awaiting work, although this was offset partially by the lower than expected dayrate secured on the land rig (USD19k, we estimated USD25k).



17.10.2011

Indonesia, new growth market We expect growing business opportunities in Indonesia, in both drilling and well services. Underlining this, KS won two contracts in Indonesia in July. On 21 July, it secured a USD32m, four-year contract to provide workover and well services to an undisclosed major, commencing end-September. On 12 July, KS partnered NOC-backed PT Pertamina Drilling Services in a USD98m, 42-month drilling deal, commencing Q3 2012e. This is positive, in our view, as it may open the door to further opportunities with PT Pertamina Drilling Services in Indonesia. Although details are limited, we believe it is onshore-based, with new land rigs working on the contracts.

Recent contract wins in distribution segment On 14 July, KS announced its distribution segment had secured a SGD70m contract to supply components for the construction of two jack-up rigs. While details were not given, we believe the Chinese shipyard could be Cosco Shipyard, which is building two of KS’s LeTourneau Workhorse 240C class jack-ups, scheduled for delivery in Q3 2013 and Q1 2014, respectively.

Jack-up newbuilds, a significant earnings driver, but only in 2014 As highlighted in our note dated 27 May, KS’s high-spec jack-up orders should place it in a stronger position in the shallow-water drilling market niche. With the addition of these two jack-ups, its jack-up drilling fleet would double to four. While still a small portfolio compared with established drillers, KS would be one of the few Asian companies with good exposure here.

In our opinion, the pricing of these newbuilds looks relatively decent with payment terms from a reputable Chinese yard, Cosco Shipyard. Management is guiding annual revenues from each jack-up of SGD68m (based on rates of USD150k/day) and EBITDA of SGD34m.

We have modelled in a payment schedule based on a 20% upfront payment this year, with the remaining 80% due in 2013. Based on these assumptions, we expect the initial 20% downpayment of USD78m to be partially funded by Itochu’s USD50m investment in KS Drilling, with the rest to be met through internal cash flow. For the remaining 80%, we argue that KS would have to secure termcharters for these newbuilds during the construction lead time to obtain financing from banks or access the capital markets, without paying high premiums.

Valuation of jack-up newbuilds We adopt a conservative approach in evaluating the NAV of the newbuild jack-ups. Our NPV of the free cash flow is based on long-term average rate of USD150k/day, opex of USD75k/day, a tax rate of 10% and annual reinvestment on a maintenance basis (depreciation). Recent contracts in the high-spec rig segment have been at USD150k–200k/day, which would suggest our valuation of the jack-ups could well be on the low side (up to USD250m) if we apply a dayrate at the higher end of the range. For now, we use the lower end of the current rate spectrum, not factoring in any change in forward dynamics in demand and supply, for which we see upside potential.



17.10.2011

Valuation and recommendation We believe that investor focus over the coming months will be on earnings. We believe the earnings recovery story (as reflected in Q2 performance, although the recovery was slower than expected) is intact, supported by improving operating performance. Fleet utilisation in the capital equipment business remains the key swing factor in earnings, while the distribution business continues to provide earnings support. We expect KS to turn profitable (on a net basis) in H2.

Our NAV is SGD1.22 per share. We reiterate our BUY recommendation and target price of SGD1.22.


Type Location ClientYard built

Year built/ refurbished Status

Ownership Avg size

Costper vessel

(USDm)FMV

(USDm)X rate

(USD/SGD)

FMV per vessel

(SGDm)

Total net value

(SGDm)1 KS Medstar-1 Jack-up drilling rig Egypt Petrobel Japan 2008 Term charter 80% 300ft 120 110 1.2 136 1092 KS Endeavor Jack-up drilling rig Africa - MIS Sharja 2010 Bareboat 40% 300ft 180 160 1.2 198 793 Atlantic Rotterdam Accommodation jack-up Denmark - - 2004 Docking 100% 250ft 85 65 1.2 81 814 Yu Song Jack-up drilling rig China COSL Dalian Shi 2003 Drylease equip 100% 300ft 56 0 1.2 0 05 Titan 2 Jack-up liftboat Nigeria GMT - 2009 Available 40% 200ft 60 60 1.2 74 306 KS Challenger 1 Landrig US - - 2007 Available for sale 40% 1300 HP 20 10 1.2 12 57 KS Challenger 3 Landrig US - - 2007 Available for sale 40% 1300 HP 20 10 1.2 12 58 Discoverer 1 Landrig Kurdistan GKPI Kurdistan - 2008 Term charter 80% 1500 HP 25 18 1.2 22 189 Discoverer 2 Landrig Dubai - - 2008 Available 80% 1500 HP 25 18 1.2 22 18

10 Discoverer 3 Landrig Pakistan - - 2007 Available 80% 1500 HP 25 18 1.2 22 1811 Discoverer 4 Landrig Kurdistan GKPI Kurdistan - 2008 Term charter 80% 2000 HP 28 18 1.2 22 1812 Esbjerg Jack-up drilling rig Denmark Maersk Drydocks 2005 MC with Prosafe 0% 250ft - 0 1.2 0 013 KS Explorer Seismic vessel - - - - Sold 0% - 30 0 1.2 0 014 Discoverer 6 Landrig Indonesia - - 2011 Term charter 48% 1000 HP 15 15 1.2 19 915 Discoverer 7 Landrig Indonesia - - 2011 Term charter 48% 1000 HP 15 15 1.2 19 916 Newbuild Jack-up drilling rig China - Cosco 2013 Newbuild 80% 400ft 194 198 1.2 246 19717 Newbuild Jack-up drilling rig China - Cosco 2014 Newbuild 80% 400ft 194 198 1.2 246 197

Total fleet value - - - - 791Distribution business, 10x 2011E EBITDA, 56% ownership 206Other financial assets - - - - 60Total asset values - - - - 1057NIBD (2011E) + future known capex - - - - 559Adj NIBD 559Equity value (SGDm) - - - - 498No of shares outstanding incl 59mn share issue related to acquisitions - - - - 407NAV per share 1.22

Source: DnB NOR Markets Note: Given our price target of SGD1.22, we do not expect conversion of the convertible bonds



17.10.2011

KS ENERGY (KSTL.SI)

PROFIT & LOSS SGDm 2008 2009 2010 2011e 2012e 2013eRevenues 611 490 509 511 649 708Other income 0 0 0 0 0 1Operating costs 509 405 454 414 532 573EBITDA 103 85 56 61 117 135Depreciation & amortisation 26 34 38 35 37 39EBIT 76 51 18 25 81 97Associated companies 15 18 -86 0 6 7Net interest -26 -17 -20 -15 -15 -16Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 77 52 -155 6 72 88Tax 5 9 8 7 12 15Minority interest 8 4 3 5 8 9Net profit 52 40 -98 -1 51 64

BALANCE SHEET SGDmIntangible assets 26 25 28 26 26 26Operating assets 417 406 362 405 405 718Associated companies 141 139 98 98 98 98Other current assets 272 242 382 337 351 376Cash & cash equivalents 68 72 35 99 149 188Total assets 931 886 905 971 1,035 1,411Equity & minority interest 419 460 465 531 591 665Interest bearing debt 346 308 306 306 306 586Non interest bearing debt 166 117 134 133 137 160Total liabilities & equity 931 886 905 971 1,035 1,411Net interest bearing debt 277 236 271 208 157 399

CASH FLOW SGDmCash earnings 96 58 -64 50 96 112Working capital 128 0 -118 33 -10 -3Investments -340 -16 42 -81 -36 -351Debt -15 -37 -2 0 0 280Equity/dividends 0 0 0 63 0 0Change in cash & liquids -130 5 -141 64 51 38

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS SGD 0.15 0.12 -0.24 0.00 0.12 0.15EPS adj SGD 0.12 0.12 -0.08 0.01 0.12 0.15Dividend ps SGD 0.02 0.00 0.00 0.00 0.00 0.00Book per share SGD 1.09 1.17 0.88 0.85 0.97 1.12Year end shares Millions 336.7 348.0 406.6 421.6 421.6 421.6Price SGD 0.99 1.24 1.08 0.99 0.99 0.99P/E X 6.4 10.8 nm nm 8.1 6.5P/E adj X 8.3 10.3 nm nm 8.1 6.5Dividend yield % 1.8 0.0 0.0 0.0 0.0 0.0P/Book X 0.9 1.1 1.2 1.2 1.0 0.9EV/EBITDA adj X 6.0 7.8 12.7 10.3 4.9 6.0EV/EBIT adj X 8.0 13.0 39.2 24.6 7.1 8.5EV/Cap employed X 0.9 0.9 1.1 0.9 0.8 0.8

Share price and targetPrice SGD 0.99Price target 12m SGD 1.22Recommendation BUYKey data per shareBook value SGD 0.88NAV SGD 1.22P/Book X 1.12P/NAV X 0.81EPS gr10-13e %cagr R+Financial structureMarket cap. SGDm 417.4Net int. bear debt SGDm 271.4Enterprise value SGDm 688.8Shares outst. Millions 421.6Equity/tot assets % 36.8Share price performanceAbs. 1/3/12m 2/-7/-6Rel. 1/3/12m 2/4/8High/Low 12m SGD 1/1STI index 2734.030days volatility % 55Company attributesReuters ticker KSTL.SISupplySingapore

ReportingQ3 2011

ManagementCEO Wiluan KrisCFO Wong Soon YinAddressKS Energy4 Tuas Avenue 5

H.p.: www.ksenergy.com.sgTel +65 6415 0808




17.10.2011

75

80

85

90

95

100

105

110

115


KS Energy


40

50

60

70

80

90

100

110

120

130


KS Energy


0

100

200

300

400

500

600

700

800

2007 2008 2009 2010 2011e 2012e 2013e-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%



-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

2007 2008 2009 2010 2011e 2012e 2013e0.00

0.02

0.04

0.06

0.08

0.10

0.12

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011e 2012e 2013e0.0%

5.0%

10.0%

15.0%

20.0%

25.0%



-300

-250

-200

-150

-100

-50

0

50

100

2007 2008 2009 2010 2011e 2012e 2013e0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2007 2008 2009 2010 2011e 2012e 2013e-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

Price/Book ROE

ROEPrice/Book



17.10.2011

DnB NOR Markets is compensated by SGX under the SERI (SGX Equity Research Insights) Sector Model for coverage of this company. The content, estimates and recommendation are solely based on DnB NOR Markets own independent judgement and the compensation is not dependent on this

Otto Marine (SELL, TP cut to SGD0.12) Moving up the OSV value chain; yet to reap rewards Otto Marine is an offshore marine group engaged in shipbuilding, ship repair and conversion, and ship chartering, with a focus on complex, sophisticated and environment friendly offshore support vessels. It owns 30 offshore support vessels (OSVs) in its chartering fleet. It also owns 11 vessels with strategic partnerships tie-ups. It provides shipbuilding (including turnkey projects) and ship-repair services from its well-equipped and strategically located Batamec Shipyard in Indonesia.

The current shipbuilding order book stands at SGD192m as of Q3, dominated by three large AHTS for Mosvold Supply and one OCV for Norshore.

Divisions • Fleet (ship chartering):

o Own chartering fleet. o Chartering fleet with strategic partnerships.

• Yard (shipbuilding and ship repair).

Assets • Chartering fleet (owns 100%). 30 offshore support vessels (see fleet

list). • Fleet with strategic partnerships (owns 35–49%). 11 offshore

support vessels (see fleet list). • Yard assets. Facilities in Batamec Shipyard, Indonesia: 145x40x7m

drydock with overhead crane, Syncrolift, covering 26,000m2, with 650m wharf length.

• Seismic operations. Reflect Geophysical.

Recent developments • Cancellation of the third Mosvold AHTS vessel. So far Mosvold Supply has

cancelled three of the four AHTS newbuilds with OTML. For the last AHTS order, we reiterate that successful completion and delivery would be the key for Mosvold to take delivery. The expected official cancellation date for this vessel is 27 January 2012, according to Mosvold’s Q1 report.

• In mid-September, OTML announced two 12,000bhp AHTS newbuilds (total USD77m) from Go Marine. In the same month, OTML entered into a sale agreement with Go Marine for the sale of its 8,000bhp AHTS Go Rigel for USD24m.

• Further discussions to extend the LOI for the AHTS Deep Sea 1. • OTML, Go Offshore (Go Marine subsidiary) and OCBC entered an indicative

term sheet in September, related to a proposed mezzanine loan of up to USD20m by OCBC to Go Offshore.

Expected newsflow • New chartering contracts in the region. • Newbuild ordering activity. • New seismic contracts in the region. • The Q3 results are due out in November.

Valuation Our base-case NAV is SGD0.14, and we believe OTML should trade at a discount (we use 15%) to NAV due to the potential negative triggers ahead. We have reduced our target price from SGD0.14 to SGD0.12, and we reiterate our SELL recommendation.



17.10.2011

Q3 preview OTML is expected to report its Q3 results in November.

We expect marginal losses in Q3 due to the profit reversal of the third cancelled Mosvold AHTS. Potential upcoming negative triggers include: 1) order book risk; 2) cash burn cycle against a highly geared balance sheet; 3) lack of new order visibility against a fast-declining order book; and 4) execution risk in the seismic segment. Based on current order book estimated at SGD192m, revenue coverage is estimated at five months on an average three-year historical order run-rate of SGD444m annually. Hence, we expect a steep decline in forward revenues due to a book to bill below 1.

Marginal losses expected due to profit reversal We expect Q3 revenues of SGD78m, EBITDA of SGD6m, EBIT of SGD2m, net losses of SGD1m (an improvement from the SGD38m loss in Q2) and EPS of SGD-0.001. Marginal losses are expected as we expect OTML to reverse the profits accumulated from third Mosvold AHTS vessel order in Q3. The vessel was cancelled in July.

Quarterly consensus is not available, but in terms of full-year estimates, we are significantly below consensus – we forecast a loss of SGD31m and consensus is for net income of SGD7m.



Operating revenues 41.7 78 na 36.0 86% 329 298 333 383 371 396EBITDA after common exp -33.3 5.7 na 39.0 n.m -7 52 57 25 56 61EBITDA margin -80% 7% - - - -2% 18% 17% 7% 15% 15%EBIT -36.5 1.9 na 38.4 n.m -22 38 42 10 46 53Net f inance -4.5 -5.7 na -1.1 n.m -21 -23 -27 - - -Pretax earnings -40.6 -1.7 na 38.9 n.m -36 24 25 6 36 46Net result -38.3 -1.3 na 37.0 n.m -31 21 21 7 34 43

EPS -0.020 -0.001 na 0.02 n.m -0.02 0.01 0.01 0.002 0.02 0.02


Source: Company data, DnB NOR Markets, Bloomberg consensus as of 6 Oct

Segment performance Revenue breakdown (new estimates) Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EShipbuilding 87 7 42 59 195 151 204Shiprepair and Conversion 0 0 4 4 8 10 10Chartering 12 11 15 15 54 62 64Seismic 11 20 13 14 57 62 41Subsea services (one vessel) 4 3 3 3 13 13 13

EBITDA breakdownShipbuilding 14 -29 4 5 -7 18 23Shiprepair and Conversion 0 0 1 1 3 5 5Chartering 10 8 10 10 38 40 43Seismic -5 -1.4 -1 2 -5 9 6Subsea services (one vessel) 1 0 0 0 2 2 2

EBITDA marginShipbuilding 16% -390% 8% 8% -4% 12% 11%Shiprepair and Conversion na na 35% 35% 35% 45% 55%Chartering 80% 74% 65% 65% 70% 65% 67%Seismic -43% -7% -5% 12% -9% 15% 15%Subsea services (one vessel) 34% 7% 15% 15% 19% 15% 15% Source: Company data, DnB NOR Markets Note: EBITDA is before unallocated common expenses such as SG&A

Cash burn cycle continues Q2 operating cash flow was SGD-79m, affected by the operating losses and negative working capital. We continue to expect cash burn until the remaining vessels in the order book are delivered and the cancelled newbuild vessels (under inventories) are sold or chartered out. We expect the second and third cancelled Mosvold vessels to be completed in H1 2012.

Balance sheet, highly geared OTML is highly leveraged, with end-Q2 debt of SGD737m (up from Q1’s SGD644m) on its balance sheet, of which SGD320m was short-term. Net debt was SGD737m (up from Q1’s SGD523m), or SGD818m (Q1: SGD621m) adjusted for the SGD81m restricted cash (overdraft, refund guarantees and shipbuilding contracts). Q2 net gearing was 1.44x; up from Q1’s 1.14x.



17.10.2011

We have not ruled out the possibility of a debt covenant breach and that the company might have to sell its vessels to improve its balance sheet strength.

Recent contract developments, related mainly to Go Marine In mid-September, OTML announced two 12,000bhp AHTS newbuilds (total USD77m) from Go Marine. This was the first contract win since 2010. However, we argue this is a ‘left pocket to right pocket’ deal, as OTML owns a 19% direct stake in Go Marine, with an option to fully own the company. In any case, the SGD94m order win would form part of the 2011e new order estimate of SGD155m. We are neutral on the deal and would have deemed it positive for the yard if it were not for the related party transaction. We do not expect material changes to the yard’s cash flow, as Go Marine's funding is likely to be backed by OTML.

And shortly before the AHTS newbuild orders, OTML entered into a sale agreement with Go Marine for the sale of its 8,000bhp AHTS Go Rigel. The sale value of USD24m was slightly above our NAV estimate of USD22m. The sales transaction was due to have completed by September 2011. We expect OTML to book a gain of USD6m (SGD7.2m). However, we do not regard this as economic profit, but rather as a one-off. Hence, there is no change to our core 2011e EPS.

Background of Go Marine Go Marine is a privately owned Australian vessel owner and fleet management company headquartered in Perth, Western Australia. It has a fleet (including managed vessels) of barges, AHTS, PSV, ROV support vessels and DSVs operating in the North West Shelf and the Timor Sea. It has been a long-term JV partner with OTML. OTML announced in February 2011 that it had entered into a convertible loan agreement with Go Marine, where the loan can be converted into 49% of shares of Go Marine. In the latest update, OTML holds 19% equity interest in Go. OTML also has the option, which expires in March 2012, to fully own Go Marine.

Go Offshore raises USD20m mezzanine loan Otto Marine, Go Offshore and OCBC entered into an indicative term sheet in September in relation to a proposed mezzanine loan of up to USD20m by OCBC to Go Offshore. Go Offshore is a wholly owned subsidiary of Go Marine. The loan’s maturity is 36 months from first drawdown but is repayable ahead of maturity, in the event of: 1) an IPO of Go Offshore or listing vehicle; or 2) the sale or transfer of all or most of the assets of Go Offshore. The loan structure includes options for OCBC to subscribe for new ordinary shares in Go Offshore or its listing vehicle up to USD20m, which is the size of the facility. Otto Marine guarantees the mezzanine loan and undertakes to become and remain largest owner of Go Marine. So far there has been a relatively muted impact on Otto Marine, as details (structure and subordination) are sketchy.

Further discussion to extend LOI agreement for Deep Sea 1 Otto Marine announced in late September that it was still in discussions with the buyer for an extension of time to pay the initial 10% deposit of USD9m. This is required for the execution of the USD90m LOI for the sale of the AHTS vessel Deep Sea 1, announced in August. OTML had agreed to extend the buyer’s request for an extension of 14 days, from 13 September (due 27 September), to pay the initial deposit. We are not surprised by the possibility of a further extension as the LOI is believed to be conditional upon Deep Sea 1 locking in a long-term charter. We argue that it will be negative for OTML if the LOI does not go through. See our notes dated 15 August and 14 September for more details.

Order book now stands at SGD192m Including the recent new contract win of 2x 12,000bhp AHTS from Go Marine, and assuming OTML’s stake in Go Marine remains at 19%, the order book is estimated at SGD192m. Based on this, the revenue coverage is estimated at five months on an average three-year historical order run-rate of SGD444m annually. Hence, we expect a steep decline in forward revenues due to a book to bill below 1.



17.10.2011

Order book

NoVessel

Type Size DeliveryExpected delivery

Est price (USDm)

Ex rate

Est price (SGDm)

% of completi

on estCompleted

(SGDm)Balance (SGDm)

% of orderbook

1 AHTS 10,800 bhp Q309 Q309 26 1.5 39 100% 39 0 0%3 Utility vessel 55 metres Q309 Q309 10 1.5 15 100% 15 0 0%4 AHTS 5,150 bhp Q309 Q309 15 1.5 22 100% 22 0 0%5 AHTS 5,150 bhp Q309 Q309 15 1.5 22 100% 22 0 0%6 AHTS 10,800 bhp Q309 Q309 26 1.5 39 100% 39 0 0%2 Work barge 300 pax Q409 Q409 29 1.5 44 100% 44 0 0%7 PSV 3,200 tonnes Q409 Q409 34 1.5 51 100% 51 0 0%9 PSV 3,200 tonnes Q110 Q110 43 1.5 65 100% 65 0 0%

10 AHTS 21,000 bhp Q210 Q410 77 1.4 108 - - - -11 PSV 3,200 tonnes Q310 Q410 43 1.4 60 100% 60 0 0%12 AHTS 21,000 bhp Q410 Q311 83 1.4 116 - - - -13 AHTS 21,000 bhp Q311 Q411 85 1.4 119 68% 81 38 20%14 OCV 115 metres Q411 Q212 131 1.4 183 70% 128 55 29%15 AHTS 8,000 bhp Q210 Q210 22 1.27 28 95% 26 1 1%16 AHTS 8,000 bhp Q410 Q210 22 1.27 28 90% 25 3 1%17 AHTS 12,000 bhp Q312 Q312 39 1.24 48 0% 0 48 25%18 AHTS 12,000 bhp Q113 Q113 39 1.24 48 0% 0 48 25%

Total 192 100% Source: Company data, DnB NOR Markets

Last Mosvold vessel remaining So far Mosvold Supply has cancelled three of the four AHTS newbuilds with OTML. For the last AHTS order, we reiterate that successful completion and delivery of this vessel would be the key for Mosvold to take delivery. The expected official cancellation date for this vessel is 27 January 2012, according to Mosvold’s Q1 report.

Subdued outlook for new orders New orders are still a relevant share price trigger in our view, but we argue that focus will be on the margins of new orders (assuming they are high-spec).

New order estimates In SGDm 2006 2007 2008 2009 2010 2011 YTD 2011E 2012E 2013ENewbuild orders** (historical) 541 606 522 83 na 95 95 na naAHTS/ AHT na na na 0 0 95 45 130 130PSVs na na na 0 0 0 60 60 120Utility vessel na na na 0 0 0 0 15 15Offshore construction vessel na na na 0 0 0 50 100 100Accomodation work barge na na na 0 0 0 0 40 40Total estimated orders 155 345 405 Source: DnB NOR Markets

Share purchases by founder not significant Since August, OTML’s founder Yaw Chee Siew has bought around 4.33m shares in OTML, taking his stake to 63.6% (from 63.4%). Though this initiative signals support by the owner, we argue it was not a significant absolute dollar amount (estimated at SGD0.65m).



17.10.2011

Valuation and recommendation Our base-case NAV values OTML at SGD0.14 per share, and we believe it should trade at a 15% discount to NAV due to the potential negative triggers ahead. We have reduced our target price from SGD0.14 to SGD0.12, and we reiterate our SELL recommendation.

‘Bear-case’ valuation – focus on floor value We have carried out a bear-case NAV analysis to derive a theoretical floor price. In this, our NAV is SGD0.09 per share.

‘Bear-case’ NAV of OTML’s fleet (own + strategic partnerships) of SGD0.09/share Own chartering fleet

No Type Contract Region Yard built Contract type Delivery AgeNAV

(USDm)Ex

rateNAV

(SGDm)Owner

ship 1 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 3 100%2 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 3 100%3 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 3 100%4 Tug Vessel 3600 dwt Under nego - Malaysia Time charter 2008 3 3 1.24 3 100%5 Tug Vessel 3600 dwt Under nego - Malaysia Time charter 2008 3 3 1.24 3 100%6 Barge 10000 dwt Chartered Middle East Batam Time charter 2007 4 3 1.24 3 100%7 Barge 10000 dwt Chartered Middle East Batam Time charter 2007 4 3 1.24 4 100%8 Barge 10000 dwt Chartered Middle East Batam Time charter 2008 3 3 1.24 4 100%9 Barge 10000 dwt Under nego - Batam Time charter 2008 3 3 1.24 4 100%

10 Barge 10000 dwt Under nego - Batam Time charter 2008 3 3 1.24 4 100%11 Maint. work vessel 61 m Chartered Asia Pacific China Bareboat 2009 2 13 1.24 16 100%12 AHTS 10800 bhp Chartered Australia Batamec Bareboat 2009 2 28 1.24 35 100%13 AHTS 10800 bhp Chartered Australia Batamec Bareboat 2009 2 28 1.24 35 100%14 AHTS 6000 bhp Chartered Asia Pacific Batamec Bareboat 2009 2 14 1.24 17 100%15 Maint. work vessel 61 m Chartered Malaysia China Bareboat 2009 2 13 1.24 16 100%16 Work barge 300 pax Available - China Available 2009 2 27 1.24 33 100%17 AHTS 6000 bhp Chartered Asia Pacific China Bareboat 2009 2 14 1.24 17 100%18 40M AHT 3600 bhp Under nego - China Available 2009 2 7 1.24 9 100%19 40M AHT 3600 bhp Under nego - China Available 2009 2 7 1.24 9 100%20 40M AHT 3600 bhp Available - China Available 2010 1 8 1.24 10 100%21 40M AHT 3600 bhp Available - China Available 2010 1 8 1.24 10 100%22 MT 6009L - MFSV 3200 dwt Contract Europe Batamec Contract 2010 1 32 1.24 40 100% 60% 24 1623 6 streamer seismic PSV 3200 dwt Sesmic ops - Batamec Sesmic ops 2010 1 50 1.24 62 100%24 AHTS 10000 bhp Available - Batamec Available 2010 1 29 1.24 36 100% 70% 25 1125 AHTS 10000 bhp Available - Batamec Available 2010 1 29 1.24 36 100% 70% 25 1126 AHTS 6000 bhp Chartered Europe China Chartered 2009 2 14 1.24 17 100% 70% 12 527 AHTS 6000 bhp Chartered Europe China Chartered 2009 2 14 1.24 17 100% 70% 12 528 Mos cancelled AHTS Deep Sea 1 21000 bhp Available - Batamec Available Q111 - 75 1.24 93 100%29 MT 6009 - MFSV 3200 dwt Contract Europe Batamec Contract 2009 - 28 1.24 35 100% 60% 21 1430 MT 6009L - MFSV 3200 dwt Sold Australia Batamec Sold Q210 - 32 1.24 0 0% 60% 0 031 AHTS 8000 bhp Available - China Available Q410 - 22 1.24 27 100%32 Multi-support subsea vessel 292 ft Hired US - Project - - 50 1.24 12 19%33 Mosvold's cancelled AHTS 21000 bhp Newbuild - Batamec Newbuild Q111 - 73 1.24 91 100%34 Mosvold's cancelled AHTS 21000 bhp Newbuild - Batamec Newbuild Q312 - 72 1.24 89 100%

Total 714 796

Chartering fleet with strategic partners


(USDm)Ex

rateNAV

(SGDm)Owner

ship funding on ves

Debt (SGDm)

NAV Otto

1 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 12 1.24 15 49% 70% 10 22 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 12 1.24 15 49% 70% 10 23 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 12 1.24 15 49% 70% 10 24 Work barge 300 pax Chartered Asia Pacific Batamec Time charter Q407 - 27 1.24 33 49% 30% 10 115 57.5m- AHTS 5150 bhp Contract Europe China Contract Q309 - 12 1.24 15 45% 70% 10 26 Work barge 300 pax Contract Europe China Contract 4Q09 - 27 1.24 33 49% 70% 23 57 AHTS 8000 bhp Newbuild - Batamec Sold Q211 - 22 1.24 27 0% 70% 19 08 AHTS 8000 bhp Newbuild - Batamec Sold Q411 - 22 1.24 27 0% 70% 19 09 AHTS 8000 bhp Newbuild - Batamec Newbuild Q112 - 21 1.24 26 49% 70% 18 4

10 Work barge 75 m Newbuild - Batamec Newbuild Q112 15 1.24 19 49% 70% 13 311 67m x 100T BHP AHTS 10000 bhp Newbuild - Batamec Newbuild Q211 - 28 1.24 35 35% 70% 24 412 67m x 100T BHP AHTS 10000 bhp Newbuild - Batamec Newbuild Q411 - 28 1.24 35 35% 70% 24 4

Total 221 39

NAV Calculation SGDm MethodNAV of own chartering fleet 796 Fair mkt valueNAV of fleet with strategic partnerships 39 Fair mkt valueNAV of yard 91 5x 2012 EV/EBITDA 6 to 5 0.09814 0.902Total assets 9252010 NIBD + future capex 826Value of WC end 2011 & 2012 80 Assumption: Long term WC need of SGDm 80NAV of all assets 179No of outstanding shares post equity issue 1890Equity value per share (SGD) 0.09

Size

Size


‘Base-case’ valuation Even though our base-case NAV is SGD0.14, we believe OTML should trade at a 15% discount to NAV due to the potential negative triggers ahead.



17.10.2011

NAV of Otto Marine’s fleet (own + strategic partnerships) of SGD0.12/share


(USDm)Ex

rateNAV

(SGDm)Owner

ship 1 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 4 100%2 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 4 100%3 Tug Vessel 3600 dwt Under nego Middle East Malaysia Time charter 2007 4 3 1.24 4 100%4 Tug Vessel 3600 dwt Under nego - Malaysia Time charter 2008 3 3 1.24 4 100%5 Tug Vessel 3600 dwt Under nego - Malaysia Time charter 2008 3 3 1.24 4 100%6 Barge 10000 dwt Chartered Middle East Batam Time charter 2007 4 3 1.24 4 100%7 Barge 10000 dwt Chartered Middle East Batam Time charter 2007 4 3 1.24 4 100%8 Barge 10000 dwt Chartered Middle East Batam Time charter 2008 3 3 1.24 4 100%9 Barge 10000 dwt Under nego - Batam Time charter 2008 3 3 1.24 4 100%

10 Barge 10000 dwt Under nego - Batam Time charter 2008 3 3 1.24 4 100%11 Maint. work vessel 61 m Chartered Asia Pacific China Bareboat 2009 2 15 1.24 19 100%12 AHTS 10800 bhp Chartered Australia Batamec Bareboat 2009 2 30 1.24 37 100%13 AHTS 10800 bhp Chartered Australia Batamec Bareboat 2009 2 30 1.24 37 100%14 AHTS 6000 bhp Chartered Asia Pacific Batamec Bareboat 2009 2 16 1.24 20 100%15 Maint. work vessel 61 m Chartered Malaysia China Bareboat 2009 2 15 1.24 19 100%16 Work barge 300 pax Available - China Available 2009 2 30 1.24 37 100%17 AHTS 6000 bhp Chartered Asia Pacific China Bareboat 2009 2 14 1.24 17 100%18 40M AHT 3600 bhp Under nego - China Available 2009 2 8 1.24 10 100%19 40M AHT 3600 bhp Under nego - China Available 2009 2 8 1.24 10 100%20 40M AHT 3600 bhp Available - China Available 2010 1 8 1.24 10 100%21 40M AHT 3600 bhp Available - China Available 2010 1 8 1.24 10 100%22 MT 6009L - MFSV 3200 dwt Contract Europe Batamec Contract 2010 1 38 1.24 47 100% 60% 28 1923 6 streamer seismic PSV 3200 dwt Sesmic ops - Batamec Sesmic ops 2010 1 70 1.24 87 100%24 AHTS 10000 bhp Available - Batamec Available 2010 1 32 1.24 40 100% 70% 28 1225 AHTS 10000 bhp Available - Batamec Available 2010 1 32 1.24 40 100% 70% 28 1226 AHTS 6000 bhp Chartered Europe China Chartered 2009 2 16 1.24 20 100% 70% 14 627 AHTS 6000 bhp Chartered Europe China Chartered 2009 2 16 1.24 20 100% 70% 14 628 Mos cancelled AHTS Deep Sea 1 21000 bhp Available - Batamec Available Q111 - 75 1.24 93 100%29 MT 6009 - MFSV 3200 dwt Contract Europe Batamec Contract 2009 - 38 1.24 47 100% 60% 28 1930 MT 6009L - MFSV 3200 dwt Sold Australia Batamec Sold Q210 - 32 1.24 0 0% 60% 0 031 AHTS 8000 bhp Available - China Available Q410 - 22 1.24 27 100%32 Multi-support subsea vessel 292 ft Hired US - Project - - 55 1.24 13 19%33 Mosvold's cancelled AHTS 21000 bhp Newbuild - Batamec Newbuild Q111 - 73 1.24 91 100%34 Mosvold's cancelled AHTS 21000 bhp Newbuild - Batamec Newbuild Q312 - 72 1.24 89 100%

Total 783 876

Chartering fleet with strategic partners


(USDm)Ex

rateNAV

(SGDm)Owner

ship funding on ves

Debt (SGDm)

NAV Otto

1 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 14 1.24 17 49% 70% 12 32 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 14 1.24 17 49% 70% 12 33 AHTS 5150 bhp Chartered Australia China Bareboat 2009 - 14 1.24 17 49% 70% 12 34 Work barge 300 pax Chartered Asia Pacific Batamec Time charter Q407 - 34 1.24 42 49% 30% 13 145 57.5m- AHTS 5150 bhp Contract Europe China Contract Q309 - 14 1.24 17 45% 70% 12 26 Work barge 300 pax Contract Europe China Contract 4Q09 - 35 1.24 43 49% 70% 30 67 AHTS 8000 bhp Newbuild - Batamec Sold Q211 - 22 1.24 27 0% 70% 19 08 AHTS 8000 bhp Newbuild - Batamec Sold Q411 - 22 1.24 27 0% 70% 19 09 AHTS 8000 bhp Newbuild - Batamec Newbuild Q112 - 22 1.24 27 49% 70% 19 4

10 Work barge 75 m Newbuild - Batamec Newbuild Q112 18 1.24 22 49% 70% 16 311 67m x 100T BHP AHTS 10000 bhp Newbuild - Batamec Newbuild Q211 - 30 1.24 37 35% 70% 26 412 67m x 100T BHP AHTS 10000 bhp Newbuild - Batamec Newbuild Q411 - 30 1.24 37 35% 70% 26 4

Total 245 46

NAV Calculation SGDm MethodNAV of own chartering fleet 876 Fair mkt valueNAV of fleet with strategic partnerships 46 Fair mkt valueNAV of yard 91 5x 2012 EV/EBITDA 6 to 5 0.08965 0.91Total assets 10132010 NIBD + future capex 826Value of WC end 2011 & 2012 80 Assumption: Long term WC need of SGDm 80NAV of all assets 267No of outstanding shares post equity issue 1890Equity value per share (SGD) 0.14Discount to NAV -15%Equity value per share after discount (SGD) 0.12

Size

Size




17.10.2011

OTTO MARINE (OTTO.SI)

PROFIT & LOSS SGDm 2008 2009 2010 2011e 2012e 2013eRevenues 484 425 580 329 298 333Other income 0 0 0 0 0 0Operating costs -388 -354 -527 -336 -246 -276EBITDA 96 71 53 -7 52 57Depreciation & amortisation 3 6 13 15 15 15EBIT 93 65 39 -22 38 42Associated companies 6 3 7 7 10 10Net interest -13 -11 -16 -21 -23 -27Other financial itemsExtraordinary items 0 0 0 0 0 0Pre-tax profit 87 56 31 -36 24 25Tax 1 2 0 1 4 4Minority interest 3 0 -3 -6 0 0Net profit 57 52 41 -31 21 21

BALANCE SHEET SGDmIntangible assets 40 45 45 45 45 45Operating assets 149 266 367 567 712 712Associated companies 56 57 36 37 37 37Other current assets 484 487 676 542 492 539Cash & cash equivalents 249 251 182 33 50 58Total assets 978 1,251 1,537 1,455 1,568 1,622Equity & minority interest 219 390 469 427 447 468Interest bearing debt 313 449 633 683 853 943Non interest bearing debt 447 413 434 339 261 205Total liabilities & equity 978 1,251 1,537 1,455 1,568 1,622Net interest bearing debt 64 199 451 650 803 885

CASH FLOW SGDmCash earnings 63 58 51 -12 25 36Working capital -138 -5 -160 29 -18 -103Investments -145 -274 -175 -215 -160 -15Debt 127 137 188 50 170 90Equity/dividends 0 0 0 0 0 0Change in cash & liquids -93 -83 -97 -149 17 8

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS SGD 0.06 0.03 0.02 -0.02 0.01 0.01EPS adj SGD 0.08 0.03 0.02 -0.02 0.01 0.01Dividend ps SGD 0.00 0.00 0.01 0.00 0.00 0.00Book per share SGD 0.22 0.23 0.25 0.23 0.24 0.25Year end shares Millions 994.1 1,662 1,890 1,890 1,890 1,890Price SGD 0.37 0.41 0.35 0.14 0.14 0.14P/E X 6.4 13.0 16.3 nm 12.4 11.9P/E adj X 4.5 12.4 18.1 nm 12.4 11.9Dividend yield % 0.0 0.0 1.4 0.0 0.0 0.0P/Book X 1.7 1.7 1.4 0.6 0.6 0.5EV/EBITDA adj X 4.5 12.4 21.1 nm 20.2 20.0EV/EBIT adj X 4.6 13.6 28.3 nm 28.0 26.9EV/Cap employed X 0.8 1.1 1.0 0.8 0.8 0.8

Share price and targetPrice SGD 0.14Price target 12m SGD 0.12Recommendation SELLKey data per shareBook value SGD 0.25P/Book X 0.54EPS gr10-13e %cagr -16.3%Financial structureMarket cap. SGDm 255.2Net int. bear debt SGDm 451.3Enterprise value SGDm 706.5Shares outst. Millions 1,890Equity/tot assets % 29.8Share price performanceAbs. 1/3/12m -8/-36/-64Rel. 1/3/12m -8/-25/-50High/Low 12m SGD 0/0STI index 2734.030days volatility % 30Company attributesReuters ticker OTTO.SISupplySingapore

ReportingQ3 2011

ManagementCEO Lee Kok WahCFO Michael See Kian HengAddressOtto Marine9 Temasek Boulevard£d£33-01 Suntec Tower 2H.p.: www.ottomarine.comTel +65 68632366




17.10.2011

30

40

50

60

70

80

90

100


Otto Marine


0.0

0.2

0.4

0.6

0.8

1.0

1.2


Otto Marine


0

100

200

300

400

500

600

700

2007 2008 2009 2010 2011e 2012e 2013e-60%-40%-20%0%20%40%60%80%100%120%140%



-0.030-0.020-0.0100.0000.0100.0200.0300.0400.0500.0600.070

2007 2008 2009 2010 2011e 2012e 2013e0.0000

0.0010

0.0020

0.0030

0.0040

0.0050

0.0060

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

-20

0

20

40

60

80

100

120

2007 2008 2009 2010 2011e 2012e 2013e-5%

0%

5%

10%

15%

20%

25%



-300

-250

-200

-150

-100

-50

0

2007 2008 2009 2010 2011e 2012e 2013e0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%



0.00.20.40.60.81.01.21.41.61.82.0

2007 2008 2009 2010 2011e 2012e 2013e-20%

0%

20%

40%

60%

80%

100%

120%

140%

Price/Book ROE

ROEPrice/Book



17.10.2011

SapuraCrest Petroleum (Under Review) Play on Malaysia’s oil service market SapuraCrest’s involvement in the oil & gas industry spans offshore drilling, installing pipelines and facilities, marine services, offshore and near-shore marine engineering, the design, manufacture and operation of remote-operated vehicles, as well as maintenance activities for the oil & gas, marine and power utility industries. SapuraCrest is one of the largest integrated oil & gas services providers in Malaysia. Backed by an established track record, it is a preferred integrated service provider.

We like SapuraCrest for its leadership position in Malaysia’s oil service industry, particularly in IPF, offshore drilling and development, and offshore support services. We value soft factors – such as the strong working relationships forged with Malaysia's NOC Petronas (evident in project wins of MYR5bn from Petronas over the past three years) – highly in this relatively protected local Malaysia market. Based on our back-end calculation, the backlog is expected to be close to MYR6.2bn.

Divisions • Installation of pipelines & facilities (IPF) services. Transporting and

installing offshore pipelines and facilities through TL Offshore and Sarku Marine.

• Drilling services. 51:49 JV with Seadrill, managing and operating a fleet (5x) of self-erecting tender drilling rigs in production, drilling, workover & associated services.

• Marine services. Providing offshore support services such as geophysical surveys, construction support, topside maintenance in hook-up commissioning, platform repairs and maintenance services, ROV inspection & intervention, diving support, and accommodation services.

• Operations & maintenance. Providing onshore support services such as wellhead maintenance, and total management system for Petronas’s petrol stations and convenient stores in Malaysia.

Assets • 5x tender drilling rigs, 1x DP2 heavylift pipelay construction vessel (with

Acergy), 1x DP2 heavylift pipelay construction vessel (with L&T), 1x multi-purpose accommodation work vessel, 4x accommodation work barges (1x is bareboat charter from Jaya), 1x newbuild derrick lay barge (with Quippo), 3x diving support vessels, 12x ROVs, 4x survey vessels.

Recent developments • In a recent industry update, sources said they believed Petrobras could be

awarding as many as six vessels in the pipelaying tender launched in July. SapuraCrest is believed to be the most aggressive bidder in both the 300t and larger 550t segments.

• Proposed merger between SapuraCrest and Kencana in July. • On 8 August SapuraCrest announced it had entered a sale & purchase

agreement with Clough to purchase its offshore marine construction division for cAUD127m (MYR400m) in cash. The deal is expected to be concluded over the next three months.

• To position itself for new target markets, SapuraCrest has put in orders for the construction of two heavylift pipelay construction vessels for USD227m at the Cosco Nantong Shipyard. Target delivery is 26–28 months from the effective contract date of 23 August.

Expected newsflow • Possible new IPF contracts from the upcoming tenders in Malaysia

(Petronas) and other Asian regions. • Q3 2011/12e results, which are due out in December. • New EPCIC contracts in international markets, such as Australia.

Valuation Our recommendation is Under Review (previously SELL), pending the conclusion of the merger between SapuraCrest and Kencana.



17.10.2011

Q2 2011/12 update (July end) In late September SapuraCrest reported its Q2 2011/12 results (July end). Below we include the text we wrote in our initial comments post the report.

For Q3 2011/12e (October end), we plan to issue a separate preview closer to the expected release, in December.

Key takeaways from Q2 earnings Q2 2011/12 earnings were in line with our expectations, as higher margins in the IPF segment made up for lower than expected revenues. Revenues were -26% versus our estimate, EBITDA was +4%, EBIT was -3%, and EPS was -0.3%. No quarterly consensus was available.

Regarding the proposed merger of SCRES and Kencana, the board resolved to accept the offer by IKSB in August 2011. We expect the merger to complete by Q1 2012 and the integration (which we believe has begun) to take longer. The SCRES share price dropped 13% after the offer was proposed in July and the offer is now at an 18% premium. Based on the offer terms and the current share price, the cash yield (cash offer component) is c18%, which we consider attractive. For the value of the IKSB shares (share swap for SCRES’ shares), we argue that the key swing factor in the combined entity (IKSB) is the NPV of synergies. We reiterate that integration is the key to success.

Our recommendation is Under Review (previously SELL), pending the conclusion of the merger of SapuraCrest and Kencana.

Absolute earnings in line with our expectations The Q2 figures (our estimate and % change YOY and QOQ in brackets) were: revenue of MYR699m (MYR949m, -22%, +27%), EBITDA of MYR144m (MYR139m, +12%, -4%), EBIT after associates of MYR148m (MYR152m, +23%, +8%), net income of MYR78m (MYR78m, +47%, +8%) and EPS of MYR0.061 (MYR0.061).

IPF margins continue to exceed our expectations Q2 revenues were MYR421m (we forecast MYR584m), EBITDA was MYR55m (we forecast MYR43m), and the margin was 13.0%, above our forecast of 7.4% but weaker than Q1’s 15.8%. We believe the key reason for higher margins was higher utilisation of its large vessels, as the JV vessels (Sapura 3000, LTS 3000) were deployed to execute the group’s IPF backlog during off-season periods in their respective JV contracts (Australia, India). Other reasons include: 1) less procurement in IPF contracts recognised; 2) lumpiness in cost allocation in projects – some projects completed in Q2 may have back-end loaded profit recognition; and 3) strong project execution, with the benefit of good weather.

We reiterate that the margin trend is expected to be volatile. Historically, some quarters have had good EBITDA margins (15.5% in Q4 2009/10, 13% in Q4 2010/11) but on a full-year blended basis they have been lower (6.9% in 2009/10 and 6.3% in 2010/11).

Drilling: lower utilisation but margins in line This is a 51/49% JV between SCRES and Seadrill. Q2 revenue was MYR169m (we forecast MYR207m), EBITDA was MYR67m (we forecast MYR84m), and the margin was 39.6% (we forecast 40.5%). We believe the lower than expected revenues were mainly due to downtime (non-drilling days due to maintenance or equipment downtime) associated with selected tender drilling rigs.

Marine Services: turnaround story increasingly convincing Marine Services is a relatively small proportion of the group (13% of Q2 EBITDA). Q2 revenue was MYR91m (we forecast MYR139m) and EBITDA was MYR19m (we forecast MYR9m). Higher than expected margins give us more confidence that a turnaround is in the offing, in line with our expectation of an operating improvement in 2011/12.

No contribution from Berantai development project yet There was no contribution from the Berantai oilfield development project, which commenced early this year. As highlighted previously, we believe this



17.10.2011

is mainly because Petronas and other contractors (such as SapuraCrest, Kencana and Petrofac) are still ironing out issues concerning the accounting method to be adopted for the recognition of revenues and costs as this is the first risk service contract awarded by Petronas.

Merger update The board resolved to accept the offer from IKSB in August 2011. We expect the merger to complete by Q1 2012 and the integration (which we believe has begun) process to take longer. The SCRES share price dropped 13% after the offer was proposed in July and the offer was at an 18% premium. Based on the offer terms and the current share price, the cash yield (cash offer component) is c18%, which we consider attractive.

For the value of the IKSB shares (share swap for SCRES’ shares), we argue that the key swing factor in the combined entity (IKSB) is the NPV of synergies, which can be broken down into earnings expansion through revenue growth (international markets such as Brazil, Australia and South East Asia) and an improving cost structure (shared services and efficiency in work process).

Integration is key to success. We reiterate that the integration will take time, as in all mergers, but we are not able to estimate the timeframe. Integration comes in the form of consolidating strategic plans, potential reaping of synergies gains in revenue growth through market/geographical expansion and cross-selling, streamlining shared services, and amalgamating the organisation culture of the two entities.

Please see separate report on the proposed merger issued in July.

Recent developments Well-positioned for Petrobras pipelaying tender In a recent industry update, sources said they believed Petrobras could be awarding as many as six vessels in the pipelaying tender launched in July. SapuraCrest is believed to be the most aggressive bidder in both the 300t and larger 550t segments. The other bidders that came in tops include Technip-Odebrecht JV and Subsea 7. Dayrates are of USD250k–300k. So far, sources suggest that Petrobras may take up three vessels from Sapura (1x 300t and 2x550t), two vessels from Technip-Odebrecht (2x550t), and one vessel from Subsea 7 (1x550t).

New pipelay vessel newbuilds To position itself for new target markets, SapuraCrest has put in orders for the construction of two heavylift pipelay construction vessels for USD227m at Cosco Nantong Shipyard. Target delivery is 26–28 months from the effective contract date of 23 August.

Acquisition of Clough’s offshore marine construction division On 8 August SapuraCrest announced it had entered a sale & purchase agreement with Clough to purchase its offshore marine construction division for cAUD127m (MYR400m) in cash. The deal is expected to be concluded over the next three months. We believe this deal offers SapuraCrest good exposure to the Australian market, in addition to its Sapura 3000 vessel (JV with Acergy) working at the Montara project off Australia.

The target entity has the potential and capacity to improve earnings, due to the low utilisation rate of its key vessels Jaya Constructor (utilisation: 35% in 2010, 60% in 2009) and Clough Challenge (laid up). However, we are neutral to the deal, due to the pending outcome of the transfer of the large single contract, the Clough Sea Trucks JV’s AUD300m Domagas contract off Gorgon with Chevron, and the integration of the combined entity that is expected to take time.

Key assets of target entity Key assets include the derrick lay barge Jaya Constructor, shallow water general purpose barge Clough Challenge, chartered-in subsea support vessel Normand Clough, one 15-pax saturation diving system, and two XL-150HP ROVs.



17.10.2011

• Jaya Constructor is a 1982-built (2009 upgraded) 8-point mooring system 120t pipelay tension derrick lay barge, which has been independently valued at USD70m.

• Clough Challenge is a 1996-built 55m support barge. It is recorded as ‘laid up’ in ABS records. A class renewal survey will be required before it returns to service.

• Normand Clough (utilised by JV Clough Helix) is not owned by Clough but is under a long-term charter from Solstad until 2013 with an option to extend for three one-year periods, including an option (exercisable from June 2013) to purchase the vessel.

Dependence on a single large contract – Domgas contract off Gorgon The financial performance of the target entity is highly dependent on the continuity of the AUD300m domestic gas (Domgas) scope of work contract with Chevron off Gorgon; Chevron has the right to terminate the contract, based on the terms. Hence, it is important that the client accepts the new entity to perform the services of this contract. The contract was awarded in December 2010 to Clough Sea Trucks JV (CSJV). CSJV is a JV between Clough and Sea Trucks Australia established to tender and execute a variety of offshore works on the Gorgon Project. The contract involves the provision of TNI of c90km of pipelines both onshore and offshore, from Barrow Island to the Dampier Bunbury natural gas pipeline, with Jaya Constructor and Clough Challenge. The contract is expected to complete in 2012.

Financial status of target entity The target entity posted a loss of AUD8m for July–December 2010 and had underlying earnings of AUD24m in the year ended 30 June 2010.

Implied multiples for the deal Based on the information that the one-off profit on sale of AUD8m is expected to be recognised by Clough, the implied P/B is c1.07x. The implied 2009/10 (June-end) P/E was 5.3x, but for 2010/11 (June-end) it is not meaningful as the marine construction division reported an underlying loss of AUD8m.

Valuation and recommendation Our recommendation is Under Review (previously SELL), pending the conclusion of the merger between SapuraCrest and Kencana.



17.10.2011

SAPURACREST PETROLEUM (SCRS.KL)

PROFIT & LOSS MYRm 2009 2010 2011 2012e 2013e 2014eRevenues 3,452 3,257 3,194 3,344 4,689 4,147Other income 0 0 0 0 0 0Operating costs -2,983 -2,803 -2,745 -2,689 -3,906 -3,428EBITDA 469 454 448 655 783 718Depreciation & amortisation 84 91 86 92 93 94EBIT 384 362 362 562 690 625Associated companies -45 47 100 111 123 70Net interest -58 -45 -38 -48 -41 -41Other financial itemsExtraordinary items 0 0 0 0 1 2Pre-tax profit 282 364 424 625 773 656Tax 32 31 48 113 154 131Minority interest 134 163 144 137 128 134Net profit 116 170 231 375 490 389

BALANCE SHEET MYRmIntangible assets 150 149 150 150 150 150Operating assets 904 900 1,018 1,026 1,033 1,039Associated companies 106 192 244 473 665 692Other current assets 1,768 1,217 1,502 1,362 1,910 1,689Cash & cash equivalents 594 876 771 995 1,033 1,567Total assets 3,531 3,353 3,690 4,031 4,815 5,163Equity & minority interest 1,324 1,458 1,448 1,960 2,577 3,101Interest bearing debt 932 703 705 705 705 705Non interest bearing debt 1,276 1,192 1,537 1,367 1,533 1,357Total liabilities & equity 3,531 3,353 3,690 4,031 4,815 5,163Net interest bearing debt 327 -191 -72 -316 -353 -888

CASH FLOW MYRmCash earnings 331 463 492 624 771 669Working capital 102 427 26 -51 -442 -7Investments -76 -182 -247 -348 -291 -127Debt -174 -142 2 0 0 0Equity/dividends 0 0 109 169 220 175Change in cash & liquids 183 566 382 393 258 710

VALUATION 2009 2010 2011 2012e 2013e 2014eEPS MYR 0.10 0.13 0.18 0.29 0.38 0.31EPS adj MYR 0.10 0.13 0.18 0.29 0.38 0.31Dividend ps MYR 0.05 0.07 0.09 0.13 0.17 0.14Book per share MYR 1.12 1.15 1.13 1.54 2.02 2.43Year end shares Millions 1,178 1,266 1,277 1,277 1,277 1,277Price MYR 0.75 2.32 3.68 3.90 3.90 3.90P/E X 7.6 17.2 20.3 13.3 10.2 12.8P/E adj X 7.6 17.2 20.3 13.3 10.2 12.8Dividend yield % 6.7 3.0 2.3 3.4 4.4 3.5P/Book X 0.7 2.0 3.2 2.5 1.9 1.6EV/EBITDA adj X 2.3 5.6 9.8 6.4 5.1 4.7EV/EBIT adj X 2.9 7.0 12.1 7.5 5.7 5.4EV/Cap employed X 0.6 1.4 2.4 1.9 1.5 1.1EV/Sales X 0.3 0.8 1.4 1.4 1.0 1.0

Share price and targetPrice MYR 3.90Price target 12m MYR 3.00Recommendation SELLKey data per shareBook value MYR 1.13P/Book X 3.44EPS gr11-14e %cagr 18.9%Sales gr11-14e %cagr 9.1%PE12e/EPS gr X 0.7Financial structureMarket cap. MYRm 4,979Net int. bear debt MYRm -72.08Enterprise value MYRm 4,907Shares outst. Millions 1,277Equity/tot assets % 36.8Share price performanceAbs. 1/3/12m -3/-14/63Rel. 1/3/12m -4/-5/67High/Low 12m MYR 5/2MSCI Malaysia index 529.930days volatility % 51Company attributesReuters ticker SCRS.KLEnergy

ReportingQ3 2012

ManagementCEO Datuk Shahril ShamsuddinCFO Azmi ArshadAddressSapuraCrest PetroleumSapura Mines 7 Jalan Tasik43300 Selangor Durul EhsanH.p.: www.sapuracrest.com.myTel +60-3-8659-8800




17.10.2011

90100110120130140150160170180190


SapuraCrest Petroleum

Rebased price (12m, MYR)

90

100

110

120

130

140

150


SapuraCrest Petroleum

Rebased consensus average forward EPS (12m, MYR)

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

2008 2009 2010 2011 2012e 2013e 2014e-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Revenue (MYRm) Revenue Growth

Revenue GrowthRevenue (MYRm)

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

2008 2009 2010 2011 2012e 2013e 2014e0.000.020.040.060.080.100.120.140.160.180.20

EPS (MYR) DPS (MYR)

DPS (MYR)EPS (MYR)

0

100

200

300

400

500

600

700

800

900

2008 2009 2010 2011 2012e 2013e 2014e0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

EBITDA (MYRm) EBITDA margin

EBITDA marginEBITDA (MYRm)

-200-100

0100200300400500600700800

2008 2009 2010 2011 2012e 2013e 2014e0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FCF (MYRm) Dividend yield

Dividend yieldFCF (MYRm)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012e 2013e 2014e0%

5%

10%

15%

20%

25%

30%

35%

Price/Book ROE

ROEPrice/Book



17.10.2011

SembCorp Marine (BUY, TP SGD4.70) Pure offshore yard play; market leader SembCorp Marine (SMM) is a leading global marine and offshore yard, specialising in a wide range of integrated solutions in drilling rig building, floating unit conversion, ship repair, and offshore engineering & construction. To differentiate itself, SMM offers a complete suite of turnkey services to the offshore oil & gas industry. Its specialised capabilities range from the engineering, procurement and construction of offshore production platforms and floating production systems, to the fabrication, integration, pre-commissioning, and offshore hook-up and commissioning of topside process modules and production modules for fixed platforms and mega FPSOs.

SMM is developing a modern, cost-efficient and integrated yard facility at Tuas, Singapore, on a 206ha reclaimed site, to be developed in three phases over 16 years. Investment is estimated at cSGD750m, on a 30+30-year lease. Focus of the 73.3ha yard will be on ship repair and conversion; the expected operating date is late 2013.

Divisions • Rig building and conversion. A world-leading builder of jack-ups,

semi-submersible drilling rigs, and other assets for the oil & gas industry. Key clients are rig owners and operators for oil companies.

• Ship repair. Ship-repair services for commercial shipping and offshore vessels; recognised as an industry leader.

• Investments in Cosco Shipyard and Cosco Singapore.

Assets • Offshore yards. Main presence in Singapore with Jurong (semi, jack-up),

PPL (jack-up) and Sembawang (conversions/FPSO). • Tuas yard development. • c30% stake in China shipyard Cosco, and 5% stake in Singapore-listed

Cosco Singapore.

Recent developments • Existing order book of cSGD5.8bn (average expected book to bill 1.23x)

is expected to provide revenues and earnings visibility for the next 15 months.

• YTD it has secured close to SGD2.8bn of new orders, with the most recent order of SGD130m for an FPSO conversion in October.

• Share price down 41% since August. • Petrobras’s newbuild rig tender for the remaining 21 rigs opened in

October. SMM is in the running for six rigs (indicative pricing USD800m each). We believe SMM stands a good chance of winning some orders, but we are unable to quantify the valuation impact at this time due to the limited information available on pricing and terms. As stated before, potential orders from this tender have not been factored into our model.

Expected newsflow • Exercised new jack-up orders from the outstanding eight options. • New orders internationally from rig owners and oil companies. • Petrobras tender awards in late 2011e. • Q3 results due out on 3 November.

Valuation Our base-case DCF is SGD4.66 per share. We believe the key valuation drivers remain long-term order wins of SGD4.6bn and an EBITDA margin of 14%. We reiterate our BUY recommendation with a DCF-based target price of SGD4.70.



17.10.2011

Q3 preview The Q3 results due out on the 3 November.

We do not disagree with the widely held view that newbuild activity will slow down; however, we argue that the market is too defensive and is pricing in a weaker than normalised cycle. As one of the world’s top offshore yards, we believe a normalised cycle would result in sufficient demand to fill its slots. The share price is down 41% since early August, which to us only makes it more attractive in terms of risk/reward. Based on the current share price, the market is pricing in SGD3.3bn of new orders each year and 12% long-term margins as per our DCF model, which we believe is not demanding.

The jack-up and deepwater floater segments remain supported by robust activity. We believe that this, as well as the tightening of the ultra-deepwater (UDW) space, could result in new ordering activity in the medium to longer term. This would be a positive trigger for both Keppel and SMM, as they have seen limited deepwater new orders this cycle, with most drillship orders going to the Koreans. We now see a greater chance that deepwater semi-sub drilling rig orders will return and believe the Singapore rig builders will be well-positioned for them.

Our base-case scenario assumes that the O&M ordering cycle normalises, with sufficient demand to fill slots at top-end yards. SMM and KEP are the top rig builders in this market and we believe are in a good position to maintain market share in jack-ups and semis.

SMM’s order book of SGD5.8bn (average expected book to bill 1.23x) should provide revenues and earnings visibility for the next 15 months. It has a good track record in project execution, with strong operating margins over the past few years: the EBITDA margin has grown from 7.7% in 2006 to 22.7% in 2010. We believe it will be able to achieve a ‘new normal’ margin of 14% in the long run, due to continued improvements in its processes.

YTD SMM has secured close to SGD2.8bn of new orders, versus its closest competitor Keppel’s SGD8.3bn. We keep our 2011e new order estimate of SGD5.4bn despite SMM’s ordering pace being slower than expected. We expect our new order estimate to be met by: 1) four out of eight outstanding newbuild jack-up options, worth cSGD805m, expected to turn firm by year-end; 2) new semi-sub orders for the US Gulf and North Sea markets; and 3) production units (platforms) for developments in Asia, Brazil, Australia, and North Sea. New order flow is lumpy in nature, and we see a downside risk to our new order estimate.

We expect a 2011e annualised dividend yield of 4% (so far SMM has declared a dividend of SGD0.05 per share, post the Q2 results).

Downside risks Risks include further market weakness, which would put downward pressure on the shares, as SMM is widely regarded as a beta stock and is well-held by institutional investors.

Another potential downside risk relates to order backlog quality. Rig orders (cSGD3.6bn) since October 2010 have been mainly on a bullet payment structure (20% initial downpayment, 80% upon delivery), and 80% of orders have yet to be financed. Hence, in a downcycle scenario where speculative rig owners might default/cancel due to a lack of access to funding and chartering contracts, yards could end up with newbuilds (as in the previous downcycle, when SMM took up PetroMena rigs). However, based on our assessment of SMM’s order book quality, we believe there is a limited risk of cancellations, as the rig owners are established industry leaders.

In the event of cancellations, we argue that both yards would be able to maintain a buffer (cost of building a rig is below market value) to protect their downside, given their execution capabilities. Furthermore, we argue that both companies’ balance sheets would allow them to hold on to any potential cancelled rigs, awaiting better pricing when the market returns.



17.10.2011

Q3 earnings not expected to be a catalyst Given the current weak macro uncertainty, we believe the Q3 earnings report (due out on 3 November) will not garner a great deal of investor focus.

We forecast Q3 revenues of SGD1,445m, EBITDA of SGD249m, EBIT of SGD229m, net income of SGD202m, and EPS of SGD0.097. No quarterly consensus is available, but on a full-year EPS basis we are 3% below for 2011e, 4% below for 2012e, and 9% below for 2013e. We expect margins to come down to sustainable levels, with our Q3 EBITDA margin forecast of 17%, a decline from H1’s 22% and 2010’s 23%.

We expect Q3 earnings to be supported by the expected earnings recognition of the Songa Eclipse semi newbuild rig. She was delivered in Q3, and we expect c30% of the outstanding project revenues (i.e. cSGD280m) and EBITDA of cSGD56m to be recognised in the quarter.

Margin trend

0%

3%

6%

9%

12%

15%

18%

21%

24%

27%

30%

33%

36%

Q1/0

6

Q2/0

6

Q3/0

6

Q4/0

6

Q1/0

7

Q2/0

7

Q3/0

7

Q4/0

7

Q1/0

8

Q2/0

8

Q3/0

8

Q4/0

8

Q1/0

9

Q2/0

9

Q3/0

9

Q4/0

9

Q1/1

0

Q2/1

0

Q3/1

0

Q4/1

0

Q1/1

1

Q2/1

1

Q3/1

1E

Q4/1

1E

2011E

2012E

2013E

EBITDA margins Historical averages Source: Company, DnB NOR Markets

Q3 forecasts and consensus SGDm Q2/11 Q3/11E Q3/11E Chg y/y % Chg


Operating revenues 831 1,445 na 613 74% 4,379 5,339 5,465 4,429 5,134 5,493EBITDA 179 249 na 70 39% 821 804 786 880 886 917EBITDA margin 22% 17% - 19% 15% 14% 20% 17% 17%EBIT 159 229 na 70 44% 739 722 705 793 777 808Net f inance 6 14 na 9 156% 35 41 48 - - -Pretax earnings 181 256 na 75 41% 829 813 807 878 873 895Net result 150 202 na 52 35% 670 666 661 702 701 728

EPS 0.072 0.097 na 0.025 35% 0.32 0.32 0.32 0.33 0.33 0.35

ConsenusFull-year figures (DnB NOR)

Source: DnB NOR Markets, company, Bloomberg consensus as of 4 October 2011



17.10.2011

Breakdown by segment (SGDm) Revenue breakdown Q1/10 Q2/10 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013ERig building 887 737 768 656 3048 319 400 954 824 2496 3665 3876Shipbuilding 0 0 0 0 0 0 0 0 0 0 0 0Conversions 320 198 151 152 820 356 259 302 263 1180 931 805Shiprepair 144 155 189 158 646 145 165 180 180 670 690 720Others 9 7 7 17 41 9 8 8 8 45 54 64

EBITDA breakdownRig building 129 163 230 245 768 73 88 186 148 496 586 581Shipbuilding 0 0 0 0 0 0 0 0 0 0 0 0Conversions 43 36 41 42 162 92 61 41 35 229 130 113Shiprepair 17 23 31 27 98 20 29 22 22 92 83 86Others 1 1 1 4 7 1 1 1 1 4 5 6

EBIT breakdownRig building 113 150 216 233 713 62 77 174 137 449 530 523Shipbuilding 0 0 0 0 0 0 0 0 0 0 0 0Conversions 37 32 38 39 147 87 55 35 29 207 116 101Shiprepair 14 21 28 24 86 17 26 18 18 80 72 76Others 1 1 1 1 3 1 1 1 1 3 4 5

EBIT marginsRig building 13% 20% 28% 36% 23% 19% 19% 18% 17% 18% 14% 14%Shipbuilding - - - - - - - - - - - -Conversions 12% 16% 25% 26% 18% 24% 21% 12% 11% 18% 12% 13%Shiprepair 10% 13% 15% 15% 13% 11% 16% 10% 10% 12% 10% 11%Others 8% 8% 8% 6% 7% 10% 10% 10% 10% 7% 8% 8% Source: DnB NOR Markets Note: No quarterly earnings breakdown, they are based on our estimates from group margins earned

Balance sheet strength SMM has net cash of SGD1,589m (end-Q2) and the upcoming capex for its new Tuas yard has already been funded. We believe SMM’s balance sheet strength would allow the company to take advantage of the current market situation (weaker asset pricing) in opportunities that could reward it in the long run.

High-quality order book During a bear market, market participants are particularly concerned about order book quality. SMM’s order book comprises orders from blue chip rig owners such as Transocean, Seadrill, Atwood Oceanics and Noble Drilling. Examining and monitoring the quality of the order book is particularly necessary in choppy markets with depressed markets heightening the possibility of payment delays or even order cancellations in a worst-case scenario. In SMM’s case, due to the high-quality names in the order book, we believe it is unlikely to face any cancellations, barring similar shocks to those seen in 2008.



17.10.2011

Existing order book of SGD5.8bn

Date ordered Unit type

No of unit Type Value Currency Client

Expected delivery SGDm

Estimated progress of completion

(%)

Estimated value left (SGDm)

% of orderbook

27-Oct-20056G Friede & Goldman semi-sub drilling rig - Petrorig 1 (sold to Diamond) 1 Semi 423 USDm Petromena Q12009 618 100% 0 0%

11-Dec-2006 Semi-sub drilling rig 1 Semi 500 USDm Noble Drilling Q12009 730 100% 0 0%15-Feb-2007 Newbuild offshore platform 1 Platform 80 USDm Total Q12009 117 100% 0 0%12-Feb-2007 Construction offshore integrated deck 1 Platform 300 USDm Carigali-PTTEPI Q22009 438 100% 0 0%3-Apr-2007 Pacific Class 375 jackup 1 Jackup 149 USDm Awilco Offshore Q22009 218 100% 0 0%

31-Oct-2006 Pacific Class 375 jackup 1 Jackup 155 USDm Offshore Group Q32009 226 100% 0 0%26-Jun-2007 Pacific Class 375 jackup 1 Jackup 190 USDm Offshore Group Q32009 277 100% 0 0%

7-Mar-20066G Friede & Goldman semi-sub drilling rig - Petrorig 2 1 Semi 480 USDm Petromena Q42009 701 100% 0 0%

10-May-2007 Semi-sub drilling rig 1 Semi 550 USDm Noble Drilling Q42009 803 100% 0 0%23-Aug-2007 Pacific Class 375 jackup 1 Jackup 198 USDm Offshore Group Q42009 289 100% 0 0%5-Sep-2007 Pacific Class 375 jackup 1 Jackup 201 USDm Egyptian Drilling Q42009 293 100% 0 0%

10-Sep-2008 FPSO conversion 1 FPSO 99 SGDm Petroserv Q42009 99 100% 0 0%5-Dec-2006 Heavy lift jackup barge 1 Jackup 180 USDm Saudi Aramco Q12010 263 100% 0 0%25-Jan-2007 6G Friede & Goldman semi-sub drilling rig - 1 Semi 524 USDm Petromena Q12010 765 100% 0 0%28-May-2007 Newbuild heavy lift vessel 1 OSV 221 USDm Nordic Heavy Lift Q12010 323 100% 0 0%21-Nov-2007 Accomodation and repair vessel conversion 5 OSV 300 SGDm Equinox Offshore Q42010 300 100% 0 0%10-Aug-2008 Pacific Class 375 jackup 2 Jackup 425 USDm Egyptian Offshore Q12010 621 100% 0 0%4-Aug-2009 FPSO conversion 1 FPSO 160 SGDm Modec Q12010 160 100% 0 0%2-May-2007 6G Friede & Goldman semi-sub drilling rig 1 Semi 536 USDm Seadrill Q22010 782 100% 0 0%

10-May-2007CJ70 harsh enviro jackup (Gusto MSC CJ70 150A or X150-A) 1 Jackup 576 USDm Seadrill Q12011 841 100% 0 0%

1-Jul-2008 HBD platform 1 Platform 400 USDm Maersk Q22010 584 100% 0 0%21-Jul-2008 Pacific Class 375 jackup 1 Jackup 220 USDm Egyptian Drilling Q22010 321 100% 0 0%6-Jun-2008 Pacific Class 375 jackup 2 Jackup 430 USDm Seadrill Q42010 628 100% 0 0%6-Apr-2009 Completion of semi-sub drilling rig 1 Semi 247 USDm Seadragon Q42010 361 100% 0 0%4-Jan-2008 6G Friede & Goldman semi-sub drilling rig 1 Semi 281 USDm Atwood Oceanics Q32011 410 100% 0 0%10-Jul-2008 Fallpipe rock dumping vessel 1 OSV 100 SGDm DEME Q12011 100 100% 0 0%

17-Sep-2008 Pacific Class 375 jackup 1 Jackup 229 USDm Sinopec Q12011 334 100% 0 0%9-Dec-2008 FPSO conversion 1 FPSO 200 SGDm Modec Q12011 200 100% 0 0%30-Jun-2008 6G Friede & Goldman semi-sub drilling rig - 1 Semi 640 USDm Larsen Oil & Gas (Songa) Q22011 934 70% 280 5%2-Jul-2009 Completion of semi-sub drilling rig 1 Semi 237 USDm Seadragon Q22011 346 81% 65 1%

28-May-2008 6G Friede & Goldman semi-sub drilling rig 1 Semi 640 USDm Seadrill Q42011 934 72% 262 5%11-May-2009 Platform contract SMOE 2 Platform 230 SGDm Premier Oil Q42011 230 72% 64 1%

8-Jul-2008 6G Friede & Goldman semi-sub drilling rig 1 Semi 565 USDm Atwood Oceanics Q22012 825 50% 412 7%11-Mar-2010 Pre-FPSO conversion 1 FPSO 93 USDm Petrobras Q22011 130 100% 0 0%18-Mar-2010 Newbuild accommodation topside EPC 1 Platform 550 SGDm ConocoPhillips Q22013 550 20% 440 8%28-Sep-2010 FPSO conversion 1 FPSO 55 SGDm BWO Q42011 55 80% 11 0%28-Sep-2010 FPSO conversion 1 FPSO 20 SGDm Bluewater Q22011 20 100% 0 0%5-Oct-2010 Pacific Class 400 jackup 2 Jackup 364 USDm Atwood Oceanics Q42012 484 35% 315 5%

12-Oct-2010 FPSO conversion 1 FPSO 351 SGDm Teekay Q12012 351 55% 158 3%18-Oct-2010 F&G 2000E 2 Jackup 384 USDm Seadrill Q42012 511 20% 409 7%16-Nov-2010 PAcific Class 400 jackup 1 Jackup 195 USDm Transocean Q42011 254 75% 63 1%

22-Dec-2010Friedman & Goldman JU3000N (Upgrade from JU2000E) 2 Jackup 400 USDm Noble Drilling Q42012 520 0% 520 9%

17-Jan-2011 Non-offshore oil and gas research vessel 1 Vessel 123 SGDm Teekay Q22013 123 0% 123 2%

17-Jan-2011Upgrading projects - drillship, pipelay vessel, LNG longevity 3 Mixed 92 SGDm Mixed Q22012 92 27% 67 1%

20-Jan-2011 PAcific Class 400 jackup 1 Jackup 182 USDm Atwood Oceanics Q22013 237 0% 237 4%

21-Mar-2011CJ70 harsh enviro jackup (Gusto MSC CJ70 150A) 1 Jackup 450 USDm Seadrill Q32013 572 0% 572 10%

28-Mar-2011Friedman & Goldman JU3000N (Upgrade from JU2000E) 2 Jackup 428 USDm Noble Drilling Q42012 539 0% 539 9%

25-Apr-2011 FSRU conversion - midsize tanker unit 1 Tanker 20 SGDm Golar LNG Q32011 20 80% 4 0%

14-Jul-2011Integrated Processing and Living Quarters Platform 1 Platform 600 SGDm PTTEP International Q42013 600 0% 600 10%

1-Aug-2011Friedman & Goldman JU3000N (Upgrade from JU2000E) 2 Jackup 444 USDm Noble Drilling Q3-Q4 2014 533 0% 533 9%

4-Oct-2011 FPSO conversion 1 FPSO 130 SGDm Modec Q22013 130 0% 130 2%Total 5803 100%


Net order book and our forecasts (year-end 2011e–2013e) Net orderbook (excluding shiprepair)

2033 2198

4209

1491 1624 1601 1391

20182240

2726

2991

871

1642

2881 2839 2773

992948

1536

1819

1206

1288

1,309 1,579 1,974298 86

6

0

0

0

34632692

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2005 2006 2007 2008 2009 2010 2011e 2012e 2013e

SG

Dm

Semi Jack-up Production units (FPSO, Platforms) Shipbuilding Source: Company, DnB NOR Markets



17.10.2011

Valuation and recommendation Base-case DCF We believe the key valuation drivers remain long-term order wins of SGD4.6bn and an EBITDA margin of 14%.

Our base-case DCF is SGD4.66. We reiterate our BUY recommendation with a DCF-based target price of SGD4.70.

Base-case assumptions

Year

New Orders estimates (SGDbn)

Orders secured (SGDbn)

EBITDA margins

FY2011e 5.4 2.7 19%FY2012e 4.8 15%FY2013e 4.8 14%FY2014e 4.9 14%Long-Term 4.6 14% Source: DnB NOR Markets

Base case: DCF valuation + associates = SGD4.62

Discounted value of free cashflowPer

share Calculation of WAACPV of free cashflow 2011-2035 (SGDm) 5,095 2.45 Market value equity (2011) in SGDm 8011PV of free cashflow 2035+ (SGDm) 736 0.35 - in % 157%Total PV of free cashflow (SGDm) 5,831 2.81 Net interest bearing debt (2010) in SGDm -2,907Other financial investments as of Q22011 (SGDm) 91 0.04 - in % -57%Net debt 2010 (SGDm) -2,907 -1.40Net value free cashflow (SGDm) 8,830 4.25 Risk premium 5%Market value of associate Cosco Singapore (SGDm) 109 0.05 Beta 1Implied value of Cosco Shipyard (peers' PE multiple 2011) 728 0.35Total value (SGDm) 9667Total value per share (SGD) 4.66 Risk free rate 3%

Risk premium 5%Terminal Growth Assumptions Interest rate 5%Nominal growth year 2035+ 2.5% Tax-rate 17%Factor 12.8 Net WACC 11% Source: DnB NOR Markets

Trough scenario In a trough scenario, the share price could fall to SGD2 based on a 6.1x trough P/E (in Q4 2008) on 2012e EPS. This implies long-term new order wins of SGD1.2bn (normalised order intake of SGD4bn 2006–2010) and an EBITDA margin of 9% (normalised EBITDA margin 13.7% 2006–2010). While we cannot rule out potential downside of 48% in such a scenario, we do not consider it likely.

Historical numbers

Year

Orders secured (SGDbn)

EBITDA margins

FY2006 4 8%FY2007 5.7 9%FY2008 5.7 11%FY2009 1.1 16%FY2010 3.5 23% Source: Company



17.10.2011

Market outlook – new orders Newbuild activity remains healthy, but slower than expected Although newbuild activity is expected to slow, it should remain high in the jack-up and deepwater floaters segments. Our view is that newbuild activity will remain high, but that the pace will be slower than in recent quarters due to macro factors (such as potentially tighter financing).

We believe that robust activity and tightening of the ultra-deepwater (UDW) space could result in new ordering activity in the medium to longer term. This would be a positive trigger for both Keppel and SMM, as they have seen limited deepwater new orders this cycle, with most drillship orders going to the Koreans. We now see a greater chance that deepwater semi-sub drilling rig orders will return and believe that the Singapore rig builders will be well-positioned for them.

Premium jack-up remains tight Premium jack-up utilisation of 96% is very tight, compared to 78% in August 2009. Contract coverage in 2013e is expected to be 38%, which is relatively decent given the new jack-ups coming into the market and the shorter contract length of jack-ups (shorter time to drill shallow-water wells).

UDW ordering activity Dissecting the newbuild cycle since October 2010, we see that the 41 UDW floaters ordered recently include 7x drillships by Petrobras, 5x semis (2x cat-D Statoil, 2x Sevan). Excluding these, there are 29 drillships being placed. We expect most of these drillships (at least 21) to go to Brazil due to its delayed newbuild programme. Hence, the UDW market is far from overcrowded. In fact, with the ultra-deepwater market characterised by superior visibility and higher dayrates, we expect newbuild ordering activity in the UDW to come back.

Return of deepwater rig orders is the price trigger The key takeaway from our recent trip to Houston to meet 15 oil service companies was that they remained highly optimistic that dayrates would continue to move higher. Optimism is particularly high in the ultra-deepwater segment.

Also, activity in the US GoM is set to move higher. In the aftermath of the Macondo incident in the US GoM last April, we have seen increased demand for premium equipment, from both oil and rig companies. There has been a significant increase in enquires and early-stage tenders for ultra-deepwater capacity in recent weeks for the US GoM. We expect several awards ahead.

Following recent updates with various industry participants, it is evident that there continues to be an increase in the number of ultra-deepwater requirements coming to the market. Just over the past few weeks, we have seen incremental demand in West Africa, East Africa and South East Asia, in addition to the positive trend in the US GoM.

This supports our view that 2012 ultra-deepwater will soon be very tight and we are likely to see several contract announcements in the coming months. It is also positive that, in enquires, durations are starting to get longer.

Economics attractive at current newbuild price At current dayrates, the economics also look good for newbuilds, in particular ultra-deepwater units, with rates in the mid- to high-USD400k, i.e. above the level needed for a reasonable return on a newbuild today. We estimate that a dayrate in the low USD400k gives a 10% return on total capital, which translates into a 22% return on equity assuming 70% leverage and a cost of debt at 5%. Hence, we view the risk/reward on new rig orders at the current rate as attractive given the potential return.

Potential demand for high-spec jack-ups with new Aldous find Statoil recently announced a mega find, the Aldous Major South discovery in the North Sea, which is estimated to hold 400m–800m barrels of oil equivalent and could be the world’s largest offshore oil find this year. We believe it could add to demand for harsh-environment jack-ups, such as the

Activity in US GoM returning – strong market support for UDW activity, especially for semi drilling

UDW market getting very tight, new orders made in this cycle are far from overcrowding the market

Potential return of UDW rig orders a strong trigger for Singapore yards



17.10.2011

Gusto MSC CJ70 and Friede and Goldman JU3000N models that have been popular among operators in the North Sea (e.g. Noble Drilling, Seadrill).

Mid-water semis also high Rig owners commented in recent results briefings that they were seeing an increasingly tight market for mid-water floaters, particularly in the North Sea. Tendering activity here has also picked up of late, with the bulk of new tenders focused in regions such as the North Sea, India and South East Asia. Together, we believe higher activity, tight supply, and new finds (Aldous Major and Avaldsnes discoveries in NCS) could provide the catalysts for an order revival for mid-water harsh-environment semis for Singaporean yards.

Petrobras tender update The Petrobras newbuild rig tender for the remaining 21 rigs has opened in Brazil, in line with expectations that it would close in September. The structure is largely unchanged from previous updates that Petrobras would charter the rigs from Sete and its JV partners or with drilling contractors, which would build the rigs with partnered yards.

SMM is in the running for six rigs (indicative pricing USD650-750m each) and we believe it is likely to tender for the drillship design.

From the opened bids, though their rates are marginally higher, we believe SMM still stands a good chance of winning some orders. Its combination with Seadrill is strong, as their participation is important to the Brazilian offshore industry, due to their expertise. And we reiterate the bids are not solely judged by the rate and mobilisation level. There are Net present value considerations in addition to adjustments for technical specification.

We are unable to quantify the valuation impact at this time due to the limited information on rig pricing and terms. As stated before, potential orders from this tender has not been factored into our model. We reiterate that building UDW newbuilds in Brazil to meet local content requirements is challenging for yards, due to the lack of existing infrastructure and skilled labour. We would be positive if these contracts were not entirely turnkey-based and have cost escalation clauses that offer some downside protection to the yard. See our note dated 4 October for more details.

Bids of 21 rigs tender and our expectations about yard and equipment Drill-ships in JVs with SETE (1.5 derrick)Bidder Day-rate (USD) Mobilization (USD) Likely yard Likely design Likely topside Likely riser Likley BOPEtesco 604,857 31,551,132 Engevix* Gusto P12000 NOV NOV NOVEtesco 604,737 32,118,979 Engevix* Gusto P12000 NOV NOV NOVEtesco 611,797 28,075,235 Odebrecht yard * LMG Marin Aker Aker or Cameron CameronEtesco 609,537 29,288,232 Odebrecht yard * LMG Marin Aker Aker or Cameron CameronEtesco 605,467 28,822,282 Engevix* Gusto P12000 NOV NOV NOVOdebrecht 619,717 28,408,239 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 618,597 29,370,610 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 621,747 29,922,686 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdebrecht 620,737 30,648,032 Odebrecht yard LMG Marin Aker Aker or Cameron CameronOdjfell-Galvao 625,277 28,510,902 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronOdjfell-Galvao 627,387 29,604,509 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronOdjfell-Galvao 630,467 30,627,974 Jurong LMG Marin NOV or Aker NOV, Cameron or Aker NOV or CameronSeadrill 628,397 29,003,515 Jurong LMG Marin NOV NOV NOVSeadrill 629,507 30,070,952 Jurong LMG Marin NOV NOV NOVSeadrill 630,587 31,054,485 Jurong LMG Marin NOV NOV NOV* Etesco has bid 3 units at Engevix and 2 at Odebrecht, uncertain which rig is at what yard

Semis in JV with SETEOdebrecht 618,057 32,381,368 Keppel FELS DSS 38E NOV NOV NOVPetroserv 620,817 29,803,804 Keppel FELS DSS 38E NOV NOV NOVPetroserv 626,397 31,094,654 Keppel FELS DSS 38E NOV NOV NOVQueiroz 616,387 30,530,586 Keppel FELS DSS 38E NOV NOV NOVQueiroz 623,937 31,679,166 Keppel FELS DSS 38E NOV NOV NOVQueiroz 612,607 29,129,291 Keppel FELS DSS 38E NOV NOV NOV

Drill-ships (dual activity)Ocean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOVOcean Rig 619,667 35,000,000 EISA (or OSX) Huisman NOV NOV Source: Petrobras, DnB NOR Markets

Cycle is not over yet, in our view We have not been expecting a super-cycle in orders for the yards, but rather given the fall in yards’ share prices we see a divergence between what the market is discounting and the current cycle. We argue that the oil & gas cycle



17.10.2011

is longer-term and that oil companies look beyond short-term volatility, as pointed out in our market outlook.

YTD SMM has secured close to SGD2.8bn of new orders, versus its closest competitor Keppel’s SGD8.6bn. We keep our new order estimate for 2011e of SGD5.4bn despite SMM’s ordering pace being slower than expected. We expect our new order estimate to be met by: 1) four out of eight outstanding newbuild jack-up options, worth cSGD805m, expected to turn firm by year-end; 2) new semi-sub orders for the US Gulf and North Sea markets; 3) production units (platforms) for developments in Asia, Australia, and North Sea. New order flow is lumpy and we see a downside risk to our new order estimate.

We expect H2 2011 rig ordering momentum to slow, but we argue that the order rate should still be decent with upcoming tenders. The share price is discounting much lower order intake, in our view.

Our base-case scenario assumes the O&M cycle normalises, with sufficient demand to fill the slots at top-end yards. SMM and KEP are the top rig builders in this market, in our opinion, and we believe they are in a good position to maintain market share in the rig building segment of jack-ups and semis.

Upcoming potential new order tenders Bid status Project Client Contenders

Bids submittedBrazil flexible pipelaying vessels (up to 6, packages for 1 or 2 vessels) Petrobras

STX Brazil, Jurong, Keppel, SHI, DSME, Metalships&Docks, SapuraCrest

Pre-Qualification exercise to begin in Jul or Aug FPSO Husky

Jurong, Keppel, COOEC/Chinese yards with FPSO specialist

Bids submittedBids for modules for the onshore LNG processing facility Inpex (Ichthys) SMOE, DSME, HHI, SHI, McDermott, COOEC

Commercial bids were due in March 2011

FSO contract in Indonesia which requires a 35% local content

Exxon (Banyu Urip Oil Project)

(Indonesia's Scorpa with Sembawang) and Indonesia's Indoturbine with SBM Offshore)

Tender opened, please see separate update

Petrobras newbuild drilling rigs orders

Petrobras/ SPV Sete Brasil Sempcorp, Keppel, EAS, Alusa Olvano, Etesco

No disclosure of bidding dates or how the contract winner will be decided

Completion of fabrication and commisioning of a pipelay vessel from CIMC Acergy Sembawang, Keppel FELS (preferred), Dubai Drydocks

Tenders released in Jan 2011Turnkey contract on a large gas compression platform Carigali Hess

SMOE, Kencana petroleum, Sime Darby, MMHE, Cuel, Nippon Steel

Bids deadline shifted to June 2011

Fabrication and installation of Wellhead platform for Bukit Tua Petronas

SMOE, Nippon Steel Enginnering, J Ray McDermott, Saimpem, Puni Lloyd, Guna Nusa, Bakrie Construction, Pal and Raga Perkasa

Potential interest, tendering not out yet 5 jackups Saudi Armaco Open (SMM likely to participate)

Potential interest, tendering not out yet 2 jackups CSMC Open (SMM likely to participate)Potential interest, tendering not out yet 1 jackup (CJ70) Rowan Open (SMM likely to participate)

Potential interest, tendering not out yet

1 jackup (Friede & Goldman Super M2 or LeTourneau Super 116E design preferred) Dragon Oil Open (SMM likely to participate)

Potential interest, tendering not out yet 2 semis European Open (SMM likely to participate)Qualified biddders invited - operators and yards Semi production unit Inpex Open (SMM is likely to partner operators)Potential interest, tendering not out yet 1 540-550ft CJ80 jack-up (large unit) Maersk Open (SMM likely to participate)Potential interest, tendering not out yet Cat J drilling semis Statoil Open (SMM is likely to participate) Source: Upstream, DnB NOR Markets

New orders: estimates and orders secured historically In SGDm (Sembcorp Marine) 2006 2007 2008 2009 2010 2011 ytd 2011E 2012E 2013ENew orders (announced) 4,090 5,711 5,700 1121 3500 2845 na na naJackup new orders 509 1,782 1,969 0 2,179 1,879 2,700 2,100 2,100Semi/ drillship new orders 1,480 2,430 3,210 707 0 0 1,500 1,500 1,500Conversions new orders 2,101 1,499 521 414 1,321 966 1,200 1,200 1,200Total newbuild orders (excluding repairs) 4,090 5,711 5,700 1121 3500 2845 5,400 4,800 4,800


Outstanding rig options at SMM and our base-case for them to be exercised this year



17.10.2011

Outstanding options

Date Client Rig type No of unitsEst value per unit (USDm)

Total value (USDm)

Total value (SGDm) Remarks

5-Oct-2010 Atwood Oceanics Pacific Class 400 jackup 2 200 400 504 One option had been exercised, leaving two outstanding options. We expect another option to be exercised

18-Oct-2010 Seadrill F&G 2000E 4 155 620 781 We expect 3 options to be exercised this year1-Aug-2011 Noble Drilling Friedman & Goldman

JU3000N (Upgrade from JU2000E)

2 220 440 554 New options secured in August, we expect them to turn firm in 2012

Total 8 1460 1840Our base case for 2011e 4 665 805 No of options we expect to turn firm this year Source: Company, DnB NOR Markets

Replacement ratio of new order intake to revenues (SGDm)

2006 2007 2008 2009 2010 2011E 2012E 2013ERevenues (offshore rigs) 1742 2499 2840 3635 3048 2496 3665 3876Revenues (conversions) 900 1131 1354 1343 820 1179.5 930.5 805Jackup and Semi new order intake 1,989 4,212 5,179 707 2,179 4,200 3,600 3,600Conversions new order intake 2,101 1,499 521 414 1,321 1,200 1,200 1,200Ratio of order intake to revenues booked (rigs) - replacement ratio 1.1 1.7 1.8 0.2 0.7 1.7 1.0 0.9Ratio of order intake to revenues booked (conversions) - replacement ratio 2.3 1.3 0.4 0.3 1.6 1.0 1.3 1.5

Historical 5-year revenue replacement ratio (rigs) 1.1Historical 5-year revenue replacement ratio (conversions) 1.23-year forward replacement ratio (rigs) based on our estimates 1.23-year forward replacement ratio (conversions) based on our estimates 1.3 Source: Company, DnB NOR Markets



17.10.2011

SEMBCORP MARINE (SCMN.SI)

PROFIT & LOSS SGDm 2008 2009 2010 2011e 2012e 2013eRevenues 5,088 5,725 4,555 4,379 5,339 5,465Other income 0 0 0 0 0 0Operating costs -4,515 -4,802 -3,519 -3,559 -4,534 -4,679EBITDA 573 923 1,036 821 804 786Depreciation & amortisation 71 75 83 82 82 82EBIT 502 848 953 739 722 705Associated companies 73 33 58 55 50 55Net interest 14 23 25 35 41 48Other financial itemsExtraordinary itemsPre-tax profit 589 905 1,036 829 813 807Tax 94 151 184 141 138 137Minority interest 21 57 34 18 9 9Net profit 474 697 818 670 666 661

BALANCE SHEET SGDmIntangible assets 6 6 6 6 6 6Operating assets 698 678 682 682 682 682Associated companies 417 434 626 626 626 626Other current assets 1,381 1,539 985 947 1,155 1,182Cash & cash equivalents 2,054 1,979 2,915 3,139 3,767 4,178Total assets 4,612 4,688 5,279 5,451 6,286 6,724Equity & minority interest 1,360 1,960 2,774 3,080 3,462 3,842Interest bearing debt 222 20 8 8 8 8Non interest bearing debt 3,030 2,707 2,584 2,363 2,816 2,875Total liabilities & equity 4,612 4,688 5,279 5,451 6,286 6,724Net interest bearing debt -1,887 -2,010 -2,972 -3,183 -3,810 -4,221

CASH FLOW SGDmCash earnings 701 880 1,060 1,208 305 750Working capital 1,317 -492 289 -621 698 33Investments 419 -111 -270 -68 -82 -82Debt -219 -202 -12 0 0 0Equity/dividends 0 -310 -747 -295 -293 -291Change in cash & liquids 2,218 -234 320 224 628 411

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS SGD 0.23 0.34 0.39 0.32 0.32 0.32EPS adj SGD 0.21 0.34 0.42 0.32 0.32 0.32Dividend ps SGD 0.11 0.15 0.36 0.14 0.14 0.14Book per share SGD 0.66 0.95 1.34 1.48 1.67 1.85Year end shares Millions 2,064 2,064 2,075 2,075 2,075 2,075Price SGD 1.68 3.70 5.37 3.86 3.86 3.86P/E X 7.3 11.0 13.6 12.0 12.0 12.1P/E adj X 8.0 10.9 12.9 12.0 12.0 12.1Dividend yield % 6.5 4.1 6.7 3.7 3.7 3.6P/Book X 2.6 3.9 4.0 2.6 2.3 2.1EV/EBITDA adj X 2.0 5.6 7.3 5.1 4.4 4.0EV/EBIT adj X 2.3 6.1 7.9 5.7 4.9 4.5EV/Cap employed X 0.8 2.7 2.8 1.4 1.0 0.8EV/Sales X 0.3 1.0 1.8 1.1 0.8 0.7

Share price and targetPrice SGD 3.86Price target 12m SGD 4.70Recommendation BUYKey data per shareBook value SGD 1.34P/Book X 2.89EPS gr10-13e %cagr -8.5%Sales gr10-13e %cagr 6.3%PE11e/EPS gr X -1.4Financial structureMarket cap. SGDm 8,011Net int. bear debt SGDm -2,972Enterprise value SGDm 5,038Shares outst. Millions 2,075Equity/tot assets % 56.2Share price performanceAbs. 1/3/12m 2/-26/-12Rel. 1/3/12m 2/-15/2High/Low 12m SGD 6/3STI index 2734.030days volatility % 55Company attributesReuters ticker SCMN.SIEnergy

ReportingQ3 2011

ManagementCEO Wong Weng SunCFO Tan Cheng TatAddressSembCorp Marine29 Tanjong Kling RoadSingapore 628054H.p.: www.sembcorpmarine.com.sgTel +65 6265 1766




17.10.2011

60

70

80

90

100

110

120

130

140


SembCorp Marine


95

100

105

110

115

120

125


SembCorp Marine


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2007 2008 2009 2010 2011e 2012e 2013e-30%

-20%

-10%

0%

10%

20%

30%



0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

2007 2008 2009 2010 2011e 2012e 2013e0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

EPS (SGD) DPS (SGD)

DPS (SGD)EPS (SGD)

0

200

400

600

800

1,000

1,200

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%



0

500

1,000

1,500

2,000

2,500

3,000

2007 2008 2009 2010 2011e 2012e 2013e0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%



0.0

1.0

2.0

3.0

4.0

5.0

6.0

2007 2008 2009 2010 2011e 2012e 2013e0%5%10%15%20%25%30%35%40%45%50%

Price/Book ROE

ROEPrice/Book



17.10.2011

STX OSV (BUY, TP SGD1.90) Differentiating itself through relentless focus on quality STX OSV is a major global designer and shipbuilder of high-end offshore support vessels (OSV). Its competitive advantage lies in its ability to innovate and integrate cutting-edge technology into highly customised vessels for clients.

It operates nine shipyards across four countries: Brazil (one), Norway (five), Romania (two) and Vietnam (one). Brazil is STX OSV’s key growth market as the hunt for oil heads toward deeper waters. To this intent, a second Brazilian yard is under way and should contribute to expanding the firm’s capacity in the region. STX OSV has established itself as one of the earliest foreign yards in Brazil, having operated there since 2001.

STX OSV’s core shipbuilding business centres around the high-spec OSV segment, such as primary tonnage seismic vessels, and support tonnage vessels including large-scale anchor handling tug supply vessels (AHTS >20,000BHP), platform supply vessels (PSV >4,500DWT) and offshore subsea construction vessels (OSCV).

OSV shipbuilding is core business (% of 2011e revenues) • AHTS (39%). Anchor handling tug supply vessels are used primarily to

tow rigs, anchor, and for general offshore supply duties, e.g. cargo/equipment.

• PSV (34%). Platform supply vessels are designed to transport supplies, liquid and cargo to offshore installations. Usually seen as the workhorse of the offshore industry.

• OSCV (16%). Offshore subsea construction vessels are deployed to perform construction work for offshore installations, such as platforms, topsides, hook-up commissioning and decommissioning.

• Other vessels (7%). Icebreakers, LNG-powered ferries, coastguard vessels, and seismic vessels.

• Trading and variation orders (4%). Trading involves activities from the sale of designs and equipment packages to third-party yards, while variation orders are increment requests to alter the original order, sometimes when vessel construction is already under way.

Key assets • Yards (machinery, cranes, land, facilities). • In-house ship design and technology know-how.

Recent developments • IPO on 12 November 2010, raising USD100.5m. The proceeds were

utilised mainly for the construction of the second yard in Brazil, the expansion of existing yard capabilities in Norway, and the upgrading of yard facilities in Vietnam and Romania.

• Environmental licence of the new Brazilian yard at Suape was granted in April 2011. Next up will be the firm awards of the eight LPG carriers, estimated worth NOK3,000m (USD536m), for the new Brazilian yard.

• New orders secured, worth NOK5.7bn YTD (included the second vessel, cNOK350m, for Island Offshore, which has yet to turn firm and is subjected certain conditions), with the latest orders being the three advanced stern trawlers for Aker Seafoods (total NOK750m) and one 3.800dwt PSV for Troms.

Expected newsflow • Potential new orders from the OSV and non-OSV segments. • The Q3 results are due out in November.

Valuation We reiterate our BUY recommendation and DCF-backed target price of SGD1.90.



17.10.2011

Q3 preview The Q3 results are due out in November.

Good margins expected We expect Q3 revenues of NOK2,991m, EBITDA of NOK455m, EBIT of NOK419m, net income of NOK307m, and EPS of NOK0.26. Margins remain the key swing factor as the yard is running at optimal capacity. We continue to expect good margins for Q3, with an EBITDA margin of 15%. The margin has outperformed both our and the market’s expectations for the past four quarters (average 15% EBITDA).

There are no quarterly consensus numbers available, but our 2011e EPS is in line with consensus.

Forecasts and consensus NOKm Q2/11 Q3/11E Q3/11E Chg q/q % Chg


Operating revenues 2,744 2,991 na 247 9% 11,745 12,220 12,667 12,033 12,592 13,589EBITDA 451 455 na 4 1% 1,772 1,523 1,433 1,738 1,601 1,580EBITDA margin 16% 15% - 15% 12% 11% 14% 13% 12%EBIT 420 419 na -1 0% 1,639 1,385 1,284 1,558 1,435 1,410Net f inance -11 2 na 13 n.m 7 16 -8 - - -Pretax earnings 419 431 na 12 3% 1,678 1,433 1,308 1,638 1,506 1,474Net result 272 307 na 35 13% 1,165 1,013 925 1,123 1,029 982

EPS 0.231 0.260 na 0.029 13% 0.99 0.86 0.78 0.95 0.86 0.81

ConsenusFull-year figures (DnB NOR)


Quarterly breakdown (NOKm) Revenue breakdown 2009 2H2010 Q3/10 Q4/10 2010 Q1/11 Q2/11 Q3/11E Q4/11E 2011E 2012E 2013EOSV Shipbuilding 11751 6173 2136 3572 11881 3192 2744 2991 2818 11749 12220 12667Others Operations 144 0 0 0 0 0 0 0 0 0 0 0

EBITDA breakdownOSV Shipbuilding 716 525 397 408 1330 439 451 455 427 1773 1523 1433Others Operations -68 0 0 0 0 0 0 0 0 0 0 0

EBIT breakdownOSV Shipbuilding 593 464 366 376 1206 409 420 419 391 1641 1385 1284Others Operations -68 0 0 0 0 0 0 0 0 0 0 0

EBITDA marginsOSV Shipbuilding 6% 9% 19% 11% 11% 14% 16% 15% 15% 15% 12% 11%Others Operations -47% - - - - - - - - - - -

EBIT marginsOSV Shipbuilding 5% 8% 17% 11% 10% 13% 15% 14% 14% 14% 11% 10%Others Operations -47% - - - - - - - - - - - Source: DnB NOR Markets, company

OSV Shipbuilding EBITDA margins

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2007 2008 2009 2010 2011E 2012E 2013E

g




17.10.2011

Majority of order book internally designed, supporting margins The mix of internal versus external designs in the orders secured YTD is still healthy, with most new orders (eight of 12, 67%) based on internal designs; in comparison, 21 of the 29 vessels last year (72%) were based on internal designs. We believe that a high proportion of internally designed vessels lends support to stronger margins going forward.

Ordering activity We reiterate that ordering momentum may slow in today’s environment but we do not expect this to result in a dry spell for STX OSV. STX OSV has been able to grab market share over the last cycle and current cycle for large vessels. We continue to consider STX OSV as the best proxy yard (high-end) in an investment cycle that we believe is not over and is gathering momentum, as pointed out in our sector analysis earlier.

The investment cycle of OSV typically lags behind that of rigs and offshore tenders (subsea, offshore construction, production, development) by 6–12 months. We expect higher demand for OSV (especially the deepwater and more sophisticated vessels), driven by a large number of newbuild rigs (jack-ups and floaters) being ordered in the past few months and good activity in the tenders for offshore projects.

And based on recent interactions with management, we understand that the activity level in the design and sales remains very high, though the macro bearish factors are affecting the timeline to finalise some of the leads it is working on near-term.

We remain comfortable with our new order estimates We expect STX OSV to secure NOK13.2bn of orders in 2011e, of which cNOK5.7bn (included the second vessel, cNOK350m, for Island Offshore, which has yet to turn firm and is subjected certain conditions) has been secured YTD. We expect our new order estimate to be met by:

• Potential two pipelaying newbuilds worth USD300m (NOK1.7bn) each, if Technip (one of the front-runners) secures the Petrobras newbuild tenders, as Technip enjoys good relationship with STX OSV.

• The delayed eight LPG carriers, worth cNOK3bn for Transpetro, expected to be made effective.

• Potential OSV orders for 3–5 units, which we believe this is likely in current environment.

• Other vessel types such as high-end fishing vessels and renewable energy vessels.

Historical new orders secured

In NOKm Units 2007 Units 2008 Units 2009 Units 2010 Units2011 ytd

AHTS 14 7,863 3 2,675 0 0 3 1,562 2 1,200PSV 11 3,722 1 526 5 2,135 17 5,962 11 3,746

OSCVs 3 2,775 0 0 0 0 1 600Other vessels 0 0 0 0 3 727 6 3,271 3 750

Trading 0 249 0 591 0 0 0 0Variation orders 0 852 0 1,900 0 1,596 0 1,166

Total new orders (announced) 28 15,461 4 5,692 8 4458 27 12,561 16 5,696 Source: DnB NOR Markets, company Note: New orders secured YTD include the second vessel (cNOK350m) for Island Offshore, which has yet to turn firm and is subjected certain conditions

New order estimates

In NOKm Units 2011E Units 2012E Units 2013EAHTS 7 3,500 8 4,800 9 5,400

PSV 8 3,600 9 4,500 10 5,000OSCVs 3 2,100 4 2,800 4 2,800

Other vessels 10 4,000 4 2,000 5 2,500Trading na 0 na 200 na 200

Variation orders na na na na na naTotal new orders (expected) 28 13,200 25 14,300 28 15,900

Source: DnB NOR Markets estimates, company Note: Our 2011 new order estimate Includes the eight LPG carriers that we expect to be effective in H2 2011; initial expectation was in Q1–Q2 2011

Strong balance sheet allows flexibility With net cash (Q2 NOK2.2bn or USD400m) and outstanding projects financed mainly by external project financing, we argue that STX OSV has



17.10.2011

the flexibility to explore various options and opportunities (buying assets in low-pricing environment, higher one-off dividends, initiating share buybacks).

Order book visibility We believe that STX OSV’s order book of cNOK16.7bn offers good revenue and earnings visibility of up to 17 months and should allow it to cope with current market weakness.

Historical and forecast order book balance

At the end of each calendar year

2,852

0

0

00

14,272 21,148

8,5386,248

27,224

22,348

16,41017,031

10,150

0

5,000

10,000

15,000

20,000

25,000

30,000

2007 2008 2009 2010 2011E 2012E 2013E

NO

Km

Order book (existing orders) Orderbook (new orders)

At the end of each calendar year

12,947 12,896

7,601

4,286 3,1695,002

6,431

6,1023,596

4,808

7,7887,314

6,964

8,162

7061

4732

27391288

1580

2301

3234

881

356

6692901 6189

6120

5950

593 768

435

381

224

233

768

0

5,000

10,000

15,000

20,000

25,000

30,000

2007 2008 2009 2010 2011E 2012E 2013EN

OK

m

AHTS PSV OSCV Other vessels Trading + variation orders Source: DnB NOR Markets, company

Zero-cancellation track record minimises risk In a bear market, investors are generally wary of an order book’s quality (risk of cancellation). With STX OSV’s zero-cancellation track record and order book made up of blue-chip clients (established players), we argue that the risk of cancellation remains low.

Sustainable dividend policy STX OSV is trading at 5% our remaining 2011e dividend forecast, of which SGD0.05 interim was paid in September. The annualised dividend yield is 10%, based on a 50% pay-out ratio. For 2012e–2013e, we expect an average dividend yield of 5% on a minimum 30% pay-out ratio. We do not see a high risk that it will cut the dividend, but rather we believe it might declare a one-off dividend. We now estimate a cash balance of SGD0.34/ share after adjusting for remaining capex (mainly for the new Brazilian yard).

Recently launched BNDES P&G programme supportive State-owned development bank BNDES has approved the creation of a support programme for the development of the supply chain for oil & gas sector related goods and services, called BNDES P&G. This programme has a budget of BRL4bn and is effective until the end of December 2015. It offers financing for working capital, support for R&D, and capital investment for the expansion of production capacity at preferred rates (ranging from 4.5% per annum for innovation to 11.04% for financing working capital). The financing rates are attractive relative to current benchmark rates of 12.5% per annum. We view this as a positive development that will support vessel owners considering fleet expansion in Brazil, and yards such as STX OSV wanting to expand operations and acquire more capital equipment as the programme provides access to capital at preferential rates.



17.10.2011

Valuation and recommendation Clear mispricing We argue that STX OSV’s recent share weakness is overdone. It was initially one of the best-performing stocks during this sell-down, with positive gains of 25% going into September. However, persistent weakness on the macro front eventually dragged the stock down, by 27% (was down 46% before the rally seen over these two weeks) in September/October. We believe the correction was generally driven by funds rebalancing (reducing positions to cash) and negative selling momentum, rather than by fundamentals.

STX OSV is undervalued by most investment metrics, in our view. We see a significant divergence between fundamentals and the current share price, as the company offers investors a high ROE, a strong balance sheet (net cash, low capex), a strong FCF-generating business (high barriers to entry as a high-end OSV yard), a long-term annualised dividend yield of 5% (minimum pay-out ratio 30%), a good quality order book of NOK16.7bn (including the second vessel, cNOK375m, for Island Offshore, which is subjected to certain conditions to be met) offering 17 months’ visibility, and relatively good trading liquidity (SGD12m shares traded daily).

STX OSV is trading at undemanding multiples of a 2011e P/E of 5x and 2012e P/E of 6x, and a 2011e EV/EBITDA of 2.4x and 2012e EV/EBITDA of 2.7x, with an ROE of 30%+ over the next three years. It is clear to us that at the current level, STX OSV offers a high margin of safety longer-term. We continue to consider it the best proxy yard (high-end) in an investment cycle that we believe is not over and is gathering momentum.

With net cash (Q2 NOK2.2bn, USD400m) and outstanding projects financed mainly by external project financing, we argue that STX OSV has the flexibility to explore various options and opportunities (buying assets in low-pricing environment, higher one-off dividends, initiating share buybacks).

We value STX OSV using a DCF. We reiterate our BUY recommendation and target price of SGD1.90.

DCF valuation SGD1.86

Discounted value of free cashflowPer

share Calculation of WACCPV of free cashflow 2011-2035 (NOKm) 6,576 5.57 NOK Market value equity (2011) in NOKm 5829PV of free cashflow 2035+ (NOKm) 635 0.54 NOK - in % 177%Total PV of free cashflow (NOKm) 7,211 6.11 NOK Net interest bearing debt (2010) in NOKm -2,541Other financial investments as of Q111 (NOKm) 29 0.02 NOK - in % -77%Net debt 2010 (NOKm) -2,541 -2.15 NOKNet value free cashflow (NOKm) 9,781 8.29 NOK Risk premium 5%

Beta 1.0

Total value (SGDm) @ SGDNOK 4.5 2198Total value per share (SGD) 1.86 Risk free rate 3%

Risk premium 5%Terminal Growth Assumptions Interest rate 5%Nominal growth year 2035+ 2.5% Tax-rate 28%Factor 12.4 Net WACC 11% Source: DnB NOR Markets



17.10.2011

STX OSV HOLDINGS (STXO.SI)

PROFIT & LOSS NOKm 2008 2009 2010 2011e 2012e 2013eRevenues 11,370 11,895 11,881 11,745 12,220 12,667Other income 0 0 0 0 0 0Operating costs -11,571 -11,246 -10,552 -9,972 -10,697 -11,234EBITDA -201 649 1,329 1,772 1,523 1,433Depreciation & amortisation 122 123 124 133 138 148EBIT -323 526 1,205 1,639 1,385 1,284Associated companies 0 7 8 32 32 32Net interest -59 5 -2 7 16 -8Other financial itemsExtraordinary items 245 -377 322 0 0 0Pre-tax profit -137 161 1,533 1,678 1,433 1,308Tax 20 66 467 492 401 366Minority interest -4 -1 35 22 19 17Net profit -153 96 1,031 1,165 1,013 925

BALANCE SHEET NOKmIntangible assets 354 350 348 348 348 348Operating assets 1,122 1,065 1,013 1,290 1,290 1,290Associated companies 132 219 307 307 307 307Other current assets 12,529 11,822 7,734 9,232 10,095 9,704Cash & cash equivalents 458 893 2,851 1,874 2,031 2,504Total assets 14,630 14,485 12,253 13,051 14,071 14,153Equity & minority interest 861 1,052 2,457 3,043 3,789 4,471Interest bearing debt 735 406 310 310 310 310Non interest bearing debt 13,063 13,046 9,526 9,720 10,012 9,430Total liabilities & equity 14,630 14,485 12,253 13,051 14,071 14,153Net interest bearing debt -609 -834 -2,541 -1,564 -1,721 -2,194

CASH FLOW NOKmCash earnings -35 218 1,190 1,348 1,724 812Working capital -1,200 882 939 -1,333 -1,124 87Investments 124 -240 -504 -410 -138 -148Debt 78 -329 -96 0 0 0Equity/dividends 0 0 572 -582 -304 -277Change in cash & liquids -1,033 531 2,101 -977 157 473

VALUATION 2008 2009 2010 2011e 2012e 2013eEPS NOK -0.15 0.10 0.87 0.99 0.86 0.78EPS adj NOK -0.40 0.47 0.60 0.99 0.86 0.78Dividend ps NOK 0.00 0.00 0.02 0.49 0.26 0.24Book per share NOK 0.86 1.05 2.08 2.58 3.21 3.79Year end shares Millions 1,000 1,000 1,180 1,180 1,180 1,180Price SGD 1.17 1.10 1.10 1.10P/E X 5.9 4.9 5.7 6.2P/E adj X 8.6 4.9 5.7 6.2Dividend yield % nm nm 0.5 10.2 5.3 4.8P/Book X 2.5 1.9 1.5 1.3EV/EBITDA adj X 2.7 2.3 2.6 2.5EV/EBIT adj X 3.0 2.5 2.9 2.8EV/Cap employed X 1.3 1.2 1.0 0.7EV/Sales X 0.3 0.4 0.3 0.3

Share price and targetPrice SGD 1.10Price target 12m SGD 1.90Recommendation BUYKey data per shareBook value NOK 2.08P/Book X 2.33EPS gr10-13e %cagr 9.3%Sales gr10-13e %cagr 2.2%PE11e/EPS gr X 0.5Financial structureMarket cap. SGDm 1,298Market cap. NOKm 5,726Net int. bear debt NOKm -2,541Enterprise value NOKm 3,185Shares outst. Millions 1,180Equity/tot assets % 23.1Share price performanceAbs. 1/3/12m -21/-27/30Rel. 1/3/12m -17/-13/45High/Low 12m SGD 2/1STI index 12061.130days volatility % 91Company attributesReuters ticker STXO.SIEnergy

ReportingQ3 2011

ManagementCEO Roy ReiteCFO Jan Ivar NielsenAddressSTX OSV HoldingsMolovegen 6, 6004 Alesund, Norway

H.p.: www.stxosv.comTel +47 70 21 06 00




17.10.2011

90100110120130140150160170180190200

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

STX OSV Holdings


90

100

110

120

130

140

150

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

STX OSV Holdings

Rebased consensus average forward EPS (12m, NOK)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2007 2008 2009 2010 2011e 2012e 2013e-5%

0%

5%

10%

15%

20%

25%

Revenue (NOKm) Revenue Growth

Revenue GrowthRevenue (NOKm)

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2007 2008 2009 2010 2011e 2012e 2013e0.00

0.10

0.20

0.30

0.40

0.50

0.60

EPS (NOK) DPS (NOK)

DPS (NOK)EPS (NOK)

-500

0

500

1,000

1,500

2,000

2007 2008 2009 2010 2011e 2012e 2013e-4%-2%0%2%4%6%8%10%12%14%16%

EBITDA (NOKm) EBITDA margin

EBITDA marginEBITDA (NOKm)

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2007 2008 2009 2010 2011e 2012e 2013e0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

FCF (NOKm) Dividend yield

Dividend yieldFCF (NOKm)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2007 2008 2009 2010 2011e 2012e 2013e-30%-20%-10%0%10%20%30%40%50%60%70%

Price/Book ROE

ROEPrice/Book



17.10.2011

Swiber Holdings (BUY, TP SGD1) Well-positioned for upbeat EPCIC market Swiber Holdings is an offshore oil service company, focused on providing engineering, procurement, construction, installation and commissioning (EPCIC), and offshore supply services to the oil & gas industry. It offers integrated solutions in three core business units: Offshore Construction Services (EPCIC), Offshore Support Services (OSS), and Offshore Development Services (ODS). It is a niche player in the interesting shallow water market, where we expect a healthy flow of subsea projects in shallow Brazil, India, Vietnam and Thailand. We believe it is well-positioned for contracts in these countries through its JVs with established local partners and direct contacts with the major oil companies. For instance, it is partnering Alam Maritime in Malaysia, CUEL in Thailand, and Rawabi in Saudi Arabia. It has a solid order book of cUSD680m.

Divisions • Offshore EPCIC services. Core business providing full suite of offshore

construction services encompassing engineering, procurement, construction, installation and commissioning (EPCIC) services.

• Offshore support services. Offshore marine fleet and diving support unit, mainly to support Swiber’s offshore EPCIC activities, presenting enhanced efficiency, timely project delivery and competitive pricing.

• Shipyard. Support role for own fleet servicing and upgrading, yard facilities with a comprehensive and growing capability for ship repair, conversion and construction, subsea support services and a widening range of engineering design, fabrication and offshore engineering services.

Assets • Fleet of 50x offshore vessels: 12x offshore construction and pipelaying

vessels, with the remainder in offshore support functions (see fleet list).

Recent developments • Contracts worth USD758m secured YTD. Swiber won USD224m of new

EPC and TNI contracts in the last two weeks of September. • Proposed perpetual preference shares. Swiber passed a resolution at the

EGM on 3 October 2011 for the proposed issuance of cumulative non-voting perpetual preference shares. The plan being considered is likely to have a convertibility option into ordinary shares under limited circumstances, which will not result in a dilution of more than 40% for existing shareholders. No other details (size, cost, convert terms) have been provided.

Expected newsflow • Possible new EPCIC contracts in South East Asia (Malaysia, Vietnam,

Indonesia, Thailand, Myanmar, Malaysia, Brunei), Taiwan, and India. • Q3 results, which are due out in November.

Valuation Our NAV (including Kreuz’s market value) is SGD1.02 per share. With an enlarged construction pipe-laying and support fleet, we continue to regard Swiber as well placed in its niche position for the upcoming tendering activity in the shallow water pipe-laying markets in Asia. We reiterate our BUY recommendation and SGD1 price target.



17.10.2011

Q3 preview We expect Swiber to report its Q3 results in mid-November.

Focus on execution of existing backlog; Q3 tends to be good We expect Q3 revenues of USD183m, EBITDA of USD24m, EBIT of USD19m, net income of USD14m, and EPS of USD0.02.

Focus in the report will be on margins again, i.e. the execution of the existing backlog of USD1bn. Margins are generally volatile for subsea players (execution risks, engineering, design failure, project management, vessel downtime, equipment delays, weather); however, a quarter of margin underperformance would erode market confidence.

As highlighted before, some market participants believe Swiber has secured contracts at the expense of margins (as the lowest bidder). The only way to answer the critics is to record good margins in the coming quarters when the contracts are being worked on. However, we argue that as it secures more work, its vessels will enjoy higher utilisation, driving up margins, as larger fixed overheads (high operating leverage business) are spread across the contracts.

We expect margins to improve in Q3 as the working season in Asia gains momentum. And the projects executed off India that hurt margins in H1 are believed to have been completed by the end of the working season in India (Q4–Q1). We forecast a Q3 EBITDA margin of 13.4%, above H1’s 9.4% but below 2010’s 15.4%.

Q3 preview USDm Q2/11 Q3/11e Q3/11e Chg y/y % Chg


Operating revenues 180.6 183 na 2.2 1% 704 893 693 618 698 772EBITDA 19.7 23.5 na 3.8 19% 78 130 104 74 99 114EBITDA margin 11% 13% 11% 15% 15% 12% 14% 15%EBIT 16.1 19 na 2.8 17% 61 108 83 57 77 93Net f inance -2.8 -4.7 na -1.9 n.m -20 -19 -17 - - -Pretax earnings 12.9 17.1 na 4.3 33% 64 102 78 55 66 79Net result 7.4 13.9 na 6.5 88% 44 79 61 39 49 60

EPS assuming bond conversion 0.01 0.021 na 0.0 88% 0.07 0.12 0.09 0.06 0.07 0.09EPS excluding bond conversion 0.01 0.027 n.a. 0.0 88% 0.09 0.16 0.12 0.08 0.10 0.12



EBITDA margins

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Q1/0

6

2Q

/06

Q3/0

6

4Q

/06

Q1/0

7

2Q

/07

Q3/0

7

Q4/0

7

Q1/0

8

2Q

/08

Q3/0

8

Q4/0

8

Q1/0

9

Q2/0

9

Q3/0

9

Q4/0

9

Q1/1

0

Q2/1

0

Q3/1

0

Q4/1

0

Q1/1

1

Q2/1

1

Q3/1

1e

Q4/1

1e

2011E

2012E

2013E


Order book at USD1.1bn, focus is on execution The current order book is cUSD1.1bn before Q3 2011e project recognition.



17.10.2011

Order backlog (USDm)

515 509

440

626

769

839

915

800

680

829

752

1103

0

200

400

600

800

1000

1200

Q1/09 Q2/09 Q3/09 Q4/09 Mar-10 May-10

Aug-10

Nov-10

Dec-10

May-11

Aug-11

Oct-11

US

Dm

Source: Company

New ordering pace exceeding expectations YTD Swiber has secured USD758m of new orders, exceeding our full-year forecast of USD602m.

Estimate revisions We have revised our new order estimates to account for the higher than expected new orders. Our new order estimates for 2012e and 2013e of USD450m are unchanged. As a result, 2011e and 2012e EPS is up 20% and 36%, respectively.

New order estimate revisions New order estimatesIn USDm Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 2010 2011E 2012E 2013ENew EPCIC orders flow assumed/ secured (historical) 3 101 23 315 143 320 0 0 0 758 - -New EPCIC order assumptions na na na na na na na na 0 850 450 500

Initial new order estimatesIn USDm Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10E 2010E 2011E 2012E 2013ENew orders flow assumed/ secured (historical) 3 101 23 315 143 320 0 0 0 758 - -New EPCIC order assumptions na na na na na na na na 0 602 450 500 Source: DnB NOR Markets

Estimate revisions

USDmn2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E 2011E 2012E 2013E

Operating revenues 704 893 693 618 699 729 86 194 -36 618 698 772EBITDA 78 130 104 69 102 109 9 27 -5 74 99 114EBITDA margin 11% 15% 15% 11% 15% 15% 0% 0% 0% 12% 14.2% 14.8%EBIT 61 108 83 52 81 88 9 27 -5 57 77 93Net f inance -20 -19 -17 -20 -18 -17 0 0 0 - - -Pretax earnings 64 102 78 55 75 83 9 27 -5 55 66 79Net result 44 79 61 37 58 65 7 21 -4 39 49 60

EPS assuming bond conversion 0.07 0.12 0.09 0.05 0.09 0.10 0.01 0.03 -0.01 0.06 0.07 0.09EPS excluding bond conversion 0.09 0.16 0.12 0.07 0.11 0.13 0.01 0.04 -0.01 0.08 0.10 0.12EPS change % assuming bond conversion 20% 36% -6%EPS change % excluding bond conversion 20% 36% -6%

Old estimates New estimates Change Consensus

Source: DnB NOR Markets, Bloomberg consensus as of 7 October



17.10.2011

Projects Swiber could be targeting EPCIC projects Swiber are targeting

Region

No of potential projects

Potential value (USDm) Till year Remarks

Brunei 8 630 2016 Looking at offshore installation and IRM contracts

Indonesia 28 1,200 2016

Bidding through JV, actively bidding now, such as the offshore installation contracts for Wortel gas development, Sisi and Nubi field development

Malaysia 15 450 2016 Looking at work off SabahVietnam 15 1,000 2016 Looking at pipelaying and support work Thailand 8 300 2016 -Myanmar 8 450 2016 -Others (Southeast Asia) 6 250 2016 -

South Asia (India) 30 6,200 2016

Potentially USD1.2bn orders to be awarded this year. Currently looking at the Cluster 7 pipeline tender, the WO16 wellhead platforms installation

Middle East 30 45,000 2016Currently believed to be bidding for 3-4 projects (such as the Satah al-Razboot project, Zadco 750 project)

Source: DnB NOR Markets, Company, Upstream

Debt remains manageable Net debt as of Q2 had risen to USD392m (from USD370m in Q1). We believe this is still manageable, with USD81m of short-term debt, a positive net working capital balance of USD217m, and cash of USD107m. Net debt to equity is 1x, in line with the Q1 2011 position.

MTN notes outstanding

Issue DateMaturity

Date Amt (SGDm) Amt (USDm) Term (years) Interest rate20-Aug-10 31-Aug-12 110 88 2 5.75%11-Oct-10 11-Oct-13 80 64 3 5.80%25-Jan-11 25-Jul-14 120 96 3.5 5.90%

Total 310 248

500 SGDm310 SGDm190

Total MTN programmeUtilised MTN (drawn down)Unutilised MTN Source: DnB NOR Markets, Company

Proposed perpetual preference shares Swiber passed a resolution at the EGM on 3 October 2011 for the proposed issuance of cumulative non-voting perpetual preference shares. The plan being considered is likely to have a convertibility option into ordinary shares under limited circumstances, which will not result in dilution of more than 40% for existing shareholders. No other details (size, cost, convert terms) have been provided.

Given the limited information available, we are not able assess the impact of this potential issue. At first glance, it appears negative due to the convertibility, which could be dilutive to existing shareholders.

Focus now is not on dilution risk from CB Based on the current share price, we do not expect investors to focus on the dilution risk. The potential maximum dilution (current conversion price is at floor price) impact for Swiber is 33%, if its bondholders convert their bonds between now and 2014. The conversion probability is subject to a number of factors, such as positive share price performance and the bondholders’ entry price. However, given our fair value on Swiber is SGD1 per share, we have factored the maximum dilution impact of 33% into our estimates and valuation.



17.10.2011

Swiber's convertible bonds Convertible bonds detailsBond ticker EH956088 CorpBond name SWIB 5 10/16/14Amount outstanding (USD) 100,000,000Coupon rate 5%Current bond price (USD) 113.275Issue date 10/16/2009Issue price (USD) 100Convertible start date 11/30/2009Convertible end date 10/10/2014Current conversion ratio 133,333Bond size (units) 1000Current conversion price (SGD) 0.864Initial conversion price (SGD) 1.08

Reset conversion price periodEach interest payment date, VWAP for up to 20 consecutive days preceding reset date

Next reset date 16 Oct 2011, semi-annualCurrent share price (SGD) 0.49Fixed USD/SGD exchange rate 1.44Min piece 100,000Price of equity based on par bond price (on Conv Ratio) 127,333Implied price of equity at current bond price (on Conv Ratio) 163,116Shares from conversion 166,666,667Current shares outstanding 508,350,000Potential max dilution 33%

Callable conditions

Callable at par after 15 Nov 2011, only VWAP for 20 consecutive days is higher than 160% of the latest conversion price

Source: DnB NOR Markets, Company, Bloomberg



17.10.2011

Valuation and recommendation Well positioned in robust niche market Swiber has won USD326m of new contracts over the past two months. We have raised our 2011 new order estimate from USD602m to USD850m, as the USD758m of new orders secured YTD is higher than we expected. This supports our view that EPCIC tendering remains robust. The order book of USD1.1bn is expected to provide revenue visibility of close to 19 months. We argue that investors have not priced in such ordering intake and most believe that, as the lowest bidder, Swiber is likely to secure the contracts at the expense of margins. However, we argue that as it secures more work, its vessels will enjoy higher utilisation, driving up margins as larger fixed overheads (high operating leverage business) are spread across the contracts. With an enlarged construction pipe-laying and support fleet, we continue to regard Swiber as well positioned in its niche for the upcoming tendering activity in the shallow water pipe-laying markets in Asia.

Our NAV is SGD1.02 per share. We reiterate our BUY recommendation and SGD1 price target.

NAV SGD1.02/share

No Vessel Type Built Ownership

Fair Market Value

(USDm) NAV (USDm)1 Swiber Conquest Pipelay barge 420 T 2007 Lease 72 722 Magnificent Derrick crane barge 4200 T 2010 100% 95 953 Swiber SLB-1 (Holmen Arctic) Submersible barge 400 ft 2008 100% 70 704 1MAS-300 Pipelay barge 300 T 2010 50% 55 285 Swiber Concorde Pipelay barge 200 T 2009 Lease 45 456 Swiber Victorious Dive support accom barge 300 men 2009 50% 35 187 Swiber Chai Derrick pipelay barge 1100 MT 2009 49% 75 378 Aziz Derrick pipelay barge 1200 T 2009 100% 78 789 Swiber Eagle Utility towing tug 3200 bhp 2006 100% 10 10

10 Swissco 99 Utility towing tug 2400 bhp 1998 100% 7 711 Swiber Raven Utility towing tug 3200 bhp 2010 100% 7 712 Swiber Anna AHT 3500 bhp 2007 100% 7 713 Swiber Explorer AHT 4000 bhp 2007 Lease 8 814 Swiber Navigator AHT 4000 bhp 2007 Lease 8 815 Swiber Valiant AHT 5000 bhp 2006 Lease 12 1216 Swiber Gallant AHT 5000 bhp 2006 Lease 12 1217 Swiber Singapore AHT 4750 bhp 2007 100% 10 1018 Swiber Bhanwar AHT 4000 bhp 2010 100% 8 819 Swiwar Challenger AHTS 5150 bhp 2007 50% 12 620 Swiwar Venturer AHTS 5150 bhp 2007 50% 12 621 Swiwar Victor AHTS 5150 bhp 2007 50% 12 622 Swiber Trader AHTS 6000 bhp 1979 100% 8 823 Swiber Ada AHTS 5000 bhp 2008 Lease 12 1224 Swiber Torunn AHTS 5000 bhp 2008 Lease 12 1225 Swiber Sandefjord AHTS 5000 bhp 2009 Lease 12 1226 Swiber Else Marie AHTS 10800 bhp 2009 Lease 30 3027 Swiber 123 Flat top barge 81 NRT 2007 100% 3 328 Swiber 251 Flat top barge 686 NRT 2005 100% 3 329 Swiber 255 Flat top barge 689 NRT 2006 100% 3 330 Swiber 282 Flat top barge 772 NRT 2007 100% 3 331 Swiber 283 Deck cargo 1015 NRT 2007 100% 7 732 Kreuz 231 Deck cargo 493 NRT 2008 100% 3 333 Kreuz 232 Deck cargo 493 NRT 2008 100% 3 334 Kreuz 281 Deck cargo 1028 NRT 2009 100% 5 535 Kreuz 282 Deck cargo 1028 NRT 2009 100% 5 536 Kreuz 283 Deck cargo 1028 NRT 2009 100% 5 537 Kreuz 284 Deck cargo 1028 NRT 2009 100% 5 538 Kreuz 241 Deck cargo 549 NRT 2006 100% 2 239 Swiber Oslo AHTS 5000 bhp 2009 Lease 12 1240 Swiber Crusader AHTS 10800 bhp 2010 50% 32 1641 Swiber Anne Christine AHTS 10800 bhp 2010 Lease 32 3242 Swiber Mary Anne AHTS 10800 bhp 2010 Lease 32 3243 Swiber Atlantis (DP2) Subsea support vessel 4950 bhp 2010 50% 55 2844 Swiber Charlton Utility vessel 2400 bhp 2010 100% 8 845 Swiber SLB-2 (Holmen Pacific) Semi-sub barge - - 2011 100% 30 3046 Swiber SLB-3 (Holmen Atlantic) Semi-sub barge - - 2011 100% 30 3047 Swiber Lina AHTS 4000 bhp - Lease 8 848 Swiber Carina AHTS 4750 bhp 2010 100% 9 949 Swiber PJW3000 Derrick pipelay barge 3000 MT 2010 50% 75 3850 Swiber PJW4000 (Kaizen 4000) Derrick crane barge 4200 T 2012 100% 120 120

Total 1031

NAV Calculation USDm MethodNAV of all vessels (including sale lease-back) 1031 Fair mkt valueNAV of yard 40 5x 2011e EV/EBITDAOther financial assetsTotal assets 1071

2011e NIBD + future capex 468Sale lease-back commitments (debt) 268Assuming conv bonds converted to offset debt 100Kreuz Subsea market value (63% owned) and Vallianz (29%) @ market price USD converted 119NAV of all assets 554No of outstanding shares 508No of shares assuming conv bonds converted @ SGD/sh 0.864 at reference rate USD/SGD 1.44 167No of outstanding shares (assuming bonds converted) 675Equity value per share (USD) 0.82Equity value per share (SGD @1.24) 1.02

Size

2009 annual disclosure & 2010 lease




17.10.2011

SWIBER HOLDINGS (SWBR.SI)

PROFIT & LOSS USDm 2008 2009 2010 2011e 2012e 2013eRevenues 428 393 470 704 893 693Other income 0 0 0 0 0 0Operating costs -382 -354 -397 -626 -764 -589EBITDA 47 39 72 78 130 104Depreciation & amortisation 9 15 14 17 22 22EBIT 38 24 58 61 108 83Associated companies 3 5 2 8 13 13Net interest -11 -14 -19 -20 -19 -17Other financial itemsExtraordinary items 0 0 0 0 0 1Pre-tax profit 30 15 40 49 102 79Tax 6 5 8 12 17 13Minority interest 1 4 2 8 5 4Net profit 39 35 37 44 79 61

BALANCE SHEET USDmIntangible assets 0 0 0 0 0 0Operating assets 282 232 313 388 478 478Associated companies 13 50 76 76 76 76Other current assets 318 524 380 457 509 367Cash & cash equivalents 75 83 138 73 59 171Total assets 706 937 990 1,080 1,212 1,186Equity & minority interest 208 309 399 459 549 618Interest bearing debt 281 335 453 453 453 403Non interest bearing debt 212 298 169 207 254 213Total liabilities & equity 701 937 990 1,080 1,212 1,186Net interest bearing debt 207 252 315 381 394 232

CASH FLOW USDmCash earnings 48 54 54 70 106 87Working capital -74 -149 -22 -39 -4 101Investments -187 2 -126 -96 -116 -26Debt 190 77 104 0 0 -50Equity/dividends 0 0 0 0 0 0Change in cash & liquids -22 -16 9 -65 -14 112


Share price and targetPrice SGD 0.55Price target 12m SGD 1.00Recommendation BUYKey data per shareBook value USD 0.78P/Book X 0.55EPS gr10-13e %cagr 15.0%Financial structureMarket cap. SGDm 279.6Market cap. USDm 218.2Net int. bear debt USDm 315.3Enterprise value USDm 533.5Shares outst. Millions 508.4Equity/tot assets % 38.9Share price performanceAbs. 1/3/12m 2/-24/-48Rel. 1/3/12m 5/-8/-35High/Low 12m SGD 1/0STI index 2133.630days volatility % 61Company attributesReuters ticker SWBR.SISupplySingapore

ReportingQ3 2011

ManagementCEO Raymond GohCFO Leonard TayAddressSwiber Holdings12 International Business ParkFloor 04-01H.p.: www.swiber.comTel +65 6223 6151




17.10.2011

40

50

60

70

80

90

100

110


Swiber Holdings


556065707580859095

100105110


Swiber Holdings


0100200300400500600700800900

1,000

2007 2008 2009 2010 2011e 2012e 2013e-50%

0%

50%

100%

150%

200%



0.000

0.020

0.040

0.060

0.080

0.100

0.120

0.140

2007 2008 2009 2010 2011e 2012e 2013e0.00.10.20.30.40.50.60.70.80.91.0

EPS (USD) DPS (USD)

DPS (USD)EPS (USD)

0

20

40

60

80

100

120

140

2007 2008 2009 2010 2011e 2012e 2013e0%

5%

10%

15%

20%

25%



-250

-200

-150

-100

-50

0

50

100

150

200

2007 2008 2009 2010 2011e 2012e 2013e0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%



0.0

1.0

2.0

3.0

4.0

5.0

6.0

2007 2008 2009 2010 2011e 2012e 2013e0%5%10%15%20%25%30%35%40%45%50%

Price/Book ROE

ROEPrice/Book



17.10.2011

IMPORTANT/DISCLAIMER This report must be seen as marketing material unless the criteria for preparing investment research, according to the Norwegian Securities Trading Regulation 2007/06/29 no. 876, are met. This report has been prepared by DnB NOR Markets, a division of DnB NOR Bank ASA. The report is based on information obtained from public sources that DnB NOR Markets believes to be reliable but which DnB NOR Markets has not independently verified, and DnB NOR Markets makes no guarantee, representation or warranty as to its accuracy or completeness. Any opinions expressed herein reflect DnB NOR Markets’ judgment at the time the report was prepared and are subject to change without notice. Confidentiality rules and internal rules restrict the exchange of information between different parts of DnB NOR Markets/DnB NOR Bank ASA and this may prevent employees of DnB NOR Markets who are preparing this report from utilizing or being aware of information available in DnB NOR Markets/DnB NOR Bank ASA which may be relevant to the recipients’ decisions. This report is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. No liability whatsoever is accepted for any direct or indirect (including consequential) loss or expense arising from the use of this report. Distribution of research reports is in certain jurisdictions restricted by law. Persons in possession of this report should seek further guidance regarding such restrictions before distributing this report. Please contact DnB NOR Markets at +47 22 94 82 72 for further information and inquiries regarding this report, such as ownership positions and publicly available/commonly known corporate advisory performed by DnB NOR Markets etc, in relation to the Norwegian Securities Trading Act 2007/06/29 no. 75 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876. This report is for clients only, and not for publication, and has been prepared for information purposes only by DnB NOR Markets - a division of DnB NOR Bank ASA registered in Norway number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), Monetary Authority of Singapore, and on a limited basis by the Financial Services Authority of UK. Information about DnB NOR Markets can be found at dnbnor.no. Additional information for clients in Singapore This report has been distributed by the Singapore branch of DnB NOR Bank ASA. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred to in this report, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product. Recipients of this report should note that, by virtue of their status as “accredited investors” or “expert investors”, the Singapore branch of DnB NOR Bank ASA will be exempt from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the “FAA”), the Financial Advisers Regulations and associated regulations there under. In particular, it will be exempt from: - Section 27 of the FAA (which requires that there must be a reasonable basis for recommendations when making recommendations on investments). Please contact the Singapore branch of DnB NOR Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, this report. We, the DnB NOR Group, our associates, officers and/or employees may have interests in any products referred to in this report by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DnB NOR Group, our associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DnB NOR Group, our associates, officers and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this report. In the United States Each research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the views expressed in this report accurately reflect that research analyst’s personal views about the company and the securities that are the subject of this report; and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report. This report is being furnished upon request and is primarily intended for distribution to “Major U.S. Institutional Investors” within the meaning of Rule 15a-6 of the U.S. Securities and Exchange Commission under the Securities Exchange Act of 1934. To the extent that this report is being furnished, or will be disseminated, to non-Major U.S. Institutional Investors, such distribution is being made by DnB NOR Markets, Inc., a separately incorporated subsidiary of DnB NOR that is a U.S. broker-dealer and a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Any U.S. recipient of this report seeking to obtain additional information or to effect any transaction in any security discussed herein or any related instrument or investment should call or write DnB NOR Markets, Inc., 200 Park Avenue, New York, NY 10166-0396, telephone number 212-681-3800 or fax 212-681-4119. In Canada This email, and any materials attached with it, has been distributed in reliance on the International Dealer Exemption pursuant to NI 31-103 subsection 8.18(2) and subsection 8.18(4)(b). Please be advised that: 1. DnB Nor Bank ASA (DnB NOR Markets) and DnB NOR Markets, Inc. are not registered in Canada. 2. DnB Nor Bank ASA (DnB NOR Markets) and DnB NOR Markets, Inc's jurisdiction of residence is Norway and the United States, respectively. 3. The name and address of the agent for service of process for DnB Nor Bank ASA (DnB NOR Markets) and DnB NOR Markets, Inc. in the local jurisdiction is: Alberta: Blake, Cassels & Graydon LLP, Attention: Pat Finnerty/Ross Bentley, 855 – 2nd Street S.W., Suite 3500, Bankers Hall East Tower, Calgary, AB T2P 4J8. British Columbia: Blakes Vancouver Services, Inc., 595 Burrard Street, P.O. Box 49314, Suite 2600, Three Bentall Centre, Vancouver, BC V7X 1L3. Labrador: Stewart McKelvey, Cabot Place, 100 New Gower Street, Suite 1100, P.O. Box 5038, St. John’s, NL A1C 5V3. Manitoba: Aikins, MacAulay & Thorvaldson LLP, 30th Floor, Commodity Exchange Tower, 360 Main Street, Winnipeg, MB R3C 4G1. Newfoundland: Stewart McKelvey, Cabot Place, 100 New Gower Street, Suite 1100, P.O. Box 5038, St. John’s, NL A1C 5V3. New Brunswick: Stewart McKelvey, 10th Floor, Brunswick House, 44 Chipman Hill, Saint John, NB E2L 4S6. Nova Scotia: Stewart McKelvey, Purdy’s Wharf Tower One, 1959 Upper Water Street, Suite 900, P.O. Box 997, Halifax, NS B3J 2X2. Ontario: Blakes Extra-Provincial Services Inc., Suite 2800, 199 Bay Street, Toronto, Ontario M5L 1A9. Prince Edward Island: Stewart McKelvey, 65 Grafton Street, Box 2140, Charlottetown, PE C1A 8B9. Quebec: Services Blakes Quebec Inc., 600 de Maisonneuve Boulevard Ouest, Suite 2200, Tour KPMG, Montreal, QC H3A 3J2. Saskatchewan: MacPherson, Leslie & Tyerman LLP, 1500 Continental Bank Building, 1874 Scarth Street, Regina, SK S4P 4E9. Northwest Territories: Gerald Stang, Suite 201, 5120-49 Street, Yellowknife, NT X1A 1P8. Yukon: Grant Macdonald, Macdonald & Company, Suite 200, Financial Plaza, 204 Lambert Street, Whitehorse, YK Y1A 3T2. Nunavut: Terry Gray, P.O. Box 1779, Building 1088C, Iqaluit, NU X0A0H0. 4. There may be difficulty enforcing legal rights against DnB NOR Bank ASA (DnB NOR Markets) and DnB NOR Markets, Inc. because each is a resident outside of Canada and all or substantially all of their assets may be situated outside of Canada.

Sector update and quarterly preview Asia Offshore ...€¦ · Sector update and quarterly preview...

Documents

Transcript of Sector update and quarterly preview Asia Offshore ...€¦ · Sector update and quarterly preview...