PP10551/09/2012 (030567) 30 Apr 2012

MALAYSIA EQUITY Investment Research Daily

IPO Note
Jason Yap +60 (3) 9207 7698 jason.yap@my.oskgroup.com

SapuraKencana Petroleum
An Integrated Upstream O&G Service Provider
SapuraKencana Petroleum (SKP), a merger between SapuraCrest Petroleum (SapCrest) and Kencana Petroleum (Kencana), will be among the 30 largest Malaysian companies by market capitalization. SKP would be a full-fledged EPCIC O&G provider and thanks to this business model, bound to target bigger and more lucrative O&G projects in and outside Malaysia. We initiate coverage with a Buy call. Based on our FV of RM2.88 for SKP (20x FY13 EPS), both Kencana and SapuraCrest should be worth about RM3.61 and RM5.64 respectively prior to the merger.

SUBSCRIBE
Fair Value IPO Price RM2.88 RM2.00

OIL & GAS

Enlarged Share Capital 5.0bn shares Indicative Listing Date Mid May 2012 Listing Sought Main Market Shariah Compliant Major Shareholders (post - IPO) (%) Sapura Technology SB Khasera Baru SB Seadrill Ltd EPF 19.0% 15.9% 11.8% 9.3% YES

Market capitalization of more than RM10.0bn. Assuming if SapCrest closes at RM5.14 and Kencana at RM3.40 on 30 April, the reference price of SKP would be RM2.30/share. SKP would then have a market capitalization of RM11.5bn making it one of the top 30 Malaysianlisted companies by market capitalization and hence, having a high chance of becoming a KLCI component stock. To recap, 1 Kencana share will be effectively exchanged for 1.26 SKP shares and RM0.48 in cash, while 1 existing SapCrest share will be effectively exchanged for 1.96 SKP shares and RM0.68 in cash. This is on the basis that both Kencana and SapCrest shares were exchanged for SKP shares at a reference price of RM3.00/share and RM4.60/share respectively. Kencana and SapuraCrests shares will cease trading on 30 April 2011 and their existing shareholders should expect the cash repayment and listing of new SKP shares to be completed by 21 May, if not earlier. A full-fledged EPCIC O&G provider. SKP is a proven integrated O&G services provider that covers the entire O&G value chain, thanks to its full-fledged engineering, procurement, construction, installation and commissioning (EPCIC) capabilities. Its other supporting businesses include the development and production of petroleum resources, offshore drilling services, marine services and operations as well as maintenance services. Having the right business model with big opportunities ahead. The global O&G industry is expected to expand by about 20% over the next 5 years. On the local front, the value of the O&G industry is expected to reach RM81.9bn or 11.1% of GDP in 2015, with both upstream and downstream activities expected to contribute about RM43.0bn or 5.8% of GDP and RM39.8bn or 5.3% of GDP respectively. Petronas could be spending RM275bn over the next 5 years and all this capex spending should benefit SKP since it is now more focused on the upstream segment. Initiate with Buy recommendation. We are initiating coverage on SKP with a Buy recommendation and our fair value for the merged entity stands at RM2.88, based on a FY13 PER of 20x. Based on our fair value of RM2.88 for the merged entity (that gives a market capitalization of RM14.4bn), Kencana should technically be worth about RM3.61 while SapCrest should be worth RM5.64.
FYE Jan (RMm)
Revenue Net Profit % chg y-o-y Consensus EPS (sen) DPS (sen) Dividend yield (%) ROE (%) ROA (%) PER (x) BV/share (RM) P/BV (x) EV/ EBITDA (x)

FY6/10
4347.1 308.2 31.7 6.2 37.3 26.1

FY6/11
4672.6 454.5 47.5 9.1 9% 4% 25.3 1.03 2.2 22.1

FY1/12f
4848.1 600.8 32.2 12.0 2.0 0.9 11% 5% 19.2 1.13 2.0 12.0

FY1/13f
5089.5 721.6 20.1 14.4 2.5 1.1 12% 6% 16.0 1.25 1.8 10.4

FY1/14f
5311.0 761.9 5.6 15.2 2.5 1.1 11% 6% 15.1 1.38 1.7 9.9

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OSK Research

HOW THE MERGER CAME ABOUT

What triggered this merger? According to the announcement made to Bursa Malaysia earlier, the purpose of this merger is to create a full-fledged integrated O&G service provider with strong delivery capabilities across the value chain, so that this merged entity can undertake larger and more complex projects. Besides that, this merger also helps to realize the objectives set out under the Economic Transformation Programme (ETP) to transform Malaysia into a leading Asian O&G hub, strengthen the countrys engineering, procurement, construction, installation and commissioning (EPCIC) capabilities as well as facilitate industry and sectoral consolidation. More specifically, we believe this merger exercise is taken by both Kencana and SapCrest to transform themselves into a bigger entity and become a more complete one-stop solution provider in the O&G industry. Being bigger would enable them to compete with their international O&G peers, especially when they venture outside Malaysia, while being a onestop solution provider would jive well with Petronas style of awarding contracts to a single main contractor which can then manage the project cost, timeline and delivery quality better. The merger path undertaken, where a special purpose vehicle is used to acquire the assets and liabilities of the two entities to be merged, is similar to that done by Synergy Drive in 2007 involving Sime Darby, Kumpulan Guthrie and Golden Hope Plantations as well as the merger between Sunway Holdings and SunCity to create Sunway Berhad. Kencana and SapCrests shares will cease trading on 30 April 2011. Then, the existing shareholders of both entities should expect the cash repayment and listing of new SKP shares to be completed by 21 May, if not earlier.

SHARE AND CASH EXCHANGE FOR EXISTING SHAREHOLDERS

1 Kencana share will be effectively exchanged for 1.26 SKP shares & RM0.48 in cash. SKP has proposed to acquire the assets and liabilities of Kencana Petroleum for RM5.98bn or equivalent to RM3.00/share via the issuance of 2.51bn new SKP shares at a reference price of RM2.00 each and cash of RM968.7m. Kencana shall then distribute the SKP shares and cash to its existing shareholders. The distribution of SKP shares and cash shall take into consideration: (i) 1.84bn existing Kencana shares, (ii) 149.3m new Kencana shares for the acquisition of underwater services company, Allied Marine & Equipment SB (AME), as announced in May 2011 to be issued at RM2.68/share, and (iii) 6.0m new Kencana shares from its ESOS. Therefore, every 1 Kencana share will be effectively exchanged for 1.26 SKP shares plus RM0.48 in cash. 1 SapCrest share will be effectively exchanged for 1.96 SKP shares & RM0.68 in cash. SKP will also acquire all the assets and liabilities of SapCrest for RM5.87bn or equivalent to RM4.60/share. Subsequently, SapCrest will distribute the cash and shares to its shareholders who will get 2.50bn new SKP shares issued at RM2.00/share and a cash payment of RM875.1m. Hence, for every 1 existing SapCrest share, the shareholder will get 1.96 SKP shares and a cash payment of RM0.68 in cash. Market capitalization of more than RM10.0bn. SKP is seeking to list with an enlarged share capital of 5.0bn shares on the Main Market of Bursa Malaysia Securities. Based on the initial proposed reference price of RM2.00 per share, SKP will have a market capitalization of about RM10.0bn. However, the reference price would likely be adjusted upward given the potential higher closing price for Kencana and SapCrest at above RM3.00/share and RM4.60/share respectively. Therefore, assuming a reference price of RM2.30/share, the market capitalization of SKP would be RM11.5bn. Figure 1: Calculation of SKP reference price
Company Share price Cash Payment 0.48 0.68 Post Cash Repayment 2.92 4.46 Ratio Avg SKP Ref Pr 2.32 2.28 2.30

Kencana SapCrest
Source: OSK

3.40 5.14

1.26 1.96

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OSK Research

Figure 2: SKP within top 30 Malaysian-listed companies by market capitalization

Maybank Sime Darby CIMB Petronas Chemicals Public Bank Maxis Axiata Genting Tenaga Basional IOI Petronas Gas Digi KLK Hong Leong Genting Malaysia PPB Group TM Petronas Daganagan AMMB YTL Corp RHB Capital British American Tobacco Hong Leong Financial Group YTL Power Bumi Armada SKP UMW Air Asia UEM Land MMHE MMC Corp Kencana Petroleum Sapura Crest
0 10 20 30 40 50 60 70

Market Cap (RM'bn)

Source: OSK, Bloomberg

GROUP STRUCTURE POST MERGER

Figure 3: Corporate structure

SapuraKencana Petroleum

SapCrest's subsidiaries, associates, JV

SapCrest (Dormant)

Kencana (Dormant)

Kencana's subsidiaries, associates, JV

Subsidiaries, associates, JV

Subsidiaries, associates, JV

Source: Prospectus

PROFILE OF PROPOSED DIRECTORS

Dato Hamzah Bakar. He would likely take up the role of Non-Independent and Non-Executive Chairman. Currently, he is the Non-Independent Non-Executive Chairman of SapuraCrest. He has served 20 years in various senior management and board positions in Petronas and prior to joining Petronas, he served in the Economic Planning Unit, the Prime Ministers Department for 12 years. Presently, he is also on the Board of CIMB Group Holdings Bhd, CIMB Investment Bank Bhd, CIMB Group SB and Gas Malaysia Bhd. Dato Mokhzani Mahathir. He would likely take the role of Non-Independent Executive Director and Executive Vice-Chairman. He was appointed to the Board of Kencana Petroleum on 25 Nov 2004 and is

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presently the Non-Independent Group CEO of Kencana Petroleum. He started his career as a Wellsite Operation Engineer with Sarawak Shell Bhd in 1987, and later joined Tongkah Holdings Bhd in 1989 and was appointed its Group Managing Director. He was also the Chairman and Group Chief Executive Officer of Pantai Holdings Bhd until 2001 and he now sits on the Board of Opcom Holdings Bhd, Maxis Bhd, SIme Darby Auto Performance SB, Kencana Capital SB and several private limited companies. Dato Seri Shahril Shamsuddin. He would likely be the Non-Independent Executive Director and President and Group CEO. He is currently the Group President and CEO of Sapura Holdings SB and its subsidiaries, associates and affiliated companies. He joined the Sapura Group of Companies in 1985 and had assumed a number of senior positions within the group before assuming the reign of Group President and CEO in 1997. He had successfully steered the group during the restructuring of its business portfolio and financials.

PRINCIPAL ACTIVITIES
A full-fledged EPCIC O&G provider. SKP will be a proven integrated O&G services provider that covers the entire O&G value chain, thanks to its full-fledged engineering, procurement, construction, installation and commissioning (EPCIC) capabilities. This EPCIC business segment also encompasses Engineering, Procurement, Construction (EPC) and Installation of Pipeline and Facilities (IPF) / Hook up and Commissioning (HUC). The other supporting businesses include the development and production of petroleum resources, offshore drilling services, marine services and operations as well as maintenance services. Prior to the merger, Kencanas core businesses include fabrication, drilling, hook -up and commissioning, offshore support services and engineering/design, while SapuraCrests core businesses include exploration, offshore installation, fabrication, drilling, hook-up and commissioning, and offshore support services. Figure 4: SKP core businesses
Development Production Drilling SapuraCrest Kencana Development, operation & maintenance of oilfield production facilities SapuraCrest Kencana Provision of drilling rigs & services EPC Kencana Field Services EPCIC IPF SapuraCrest Marine Services SapuraCrest Kencana Provision of supporting offshore services Maintenance & Retail Services SapuraCrest Kencana Turbine repair, maintenance, petrol stations, retail solutions general mainteance

Engineering, procurement & construciton services

Installation & commissioning of pipelines & facilities

Source: OSK, SKP

Figure 5: Stages of O&G development and how SKPs services play their roles
% of Total Capex Exploration 2-3% Scope of Work SKP Services

Seismic Drilling 1-3 mths: Engineering & design 12-24 mths: Offshore infrastructure / fabrication 24-36 mths: Platform transport to offshore & installation Hook-up & commissioning Development drilling Lifetime of production field

Marine services

Development

30-35% 30-35% 30-35%

EPC IPF Marine services Drilling Marine services

Production

15-25%

Source: OSK, SKP

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OSK Research

Having the right business model with big opportunities ahead. The global O&G industry is expected to expand by about 20% over the next 5 years. On the local front, the value of the O&G industry is expected to reach RM81.9bn or 11.1% of GDP in 2015, with both upstream and downstream activities expected to contribute about RM43.0bn or 5.8% of GDP and RM39.8bn or 5.3% of GDP respectively. Petronas could be spending RM275bn over the next 5 years and all these capex spending should benefit SKP since it is now more focused on the upstream segment. Drilling business segment. This business will involve operating rigs and drilling of offshore wells for both green fields as well as existing platforms. These drilling activities will usually be carried out using mobile drilling units such as tender rigs. SKP has six self-erecting tender rigs, with two more under construction. The existing six tender rigs include: (i) T-3, (ii) T-6, (iii) T-9, (iv) T-10, (v) Teknik Berkat, and (vi) KM-1, while the two new tender rigs under construction are: (i) KM-2, and (ii) KM-3. We understand that these two new tender rigs would be ready for deployment by Dec 2012 and one of them should be deployed for a project that involves Petronas and its PSC contractors. EPCIC business segment. SKP has an integrated in-house capability to undertake the full spectrum of the EPCIC services, including: (i) EPC which encompasses engineering and fabrication of offshore/onshore production facilities, construction and conversion of vessels and rigs as well as other fabrication works, and (ii) IPF which encompasses the installation of platforms, pipelines and facilities, hook-up and commissioning and finally decommissioning. For the EPC business subsegment, SKP has two fabrication and ship yards with a combined capacity of 100k tonnes p.a. under its stable. The two fabrication and ship yards include: (i) Kencanas yard in Lumut with a capacity of 60k tones p.a., and (ii) the SapuraCrest Labuan Shipyard in Labuan with a capacity of 40k tonnes p.a. As for its IPF business subsegment, SKP has four derrick lay barges with two more to be delivered by 4Q13 and 1Q14. The existing four derrick lay barges include: (i) Sapura 3000, (ii) LTS 3000, (iii) QP 2000, and (iv) Kencana derrick lay barge. Also, with its recently acquired Clo ughs marine construction business, SKP will be able to vie for projects that involve the provision of solutions to offshore O&G field developments in the domestic Australasian market and Asia Pacific region, the North Sea and the Gulf of Mexico Marine services business segment. SKPs marine services encompass subsea and diving services, geotechnical and geophysical services, topside maintenance and offshore support vessel services. For the subsea and diving services, SKP has a fleet of six vessels, of which 5 vessels are DP Class 2 diving support and ROV vessels. As for the geotechnical and geophysical services, SKP has four survey vessels and for topside maintenance services, it has three work barges and three work boats. Finally, for its offshore support vessel services, it owns two AHTS and two AHT. Maintenance and retail services businesses. SKP provides maintenance and refurbishment services for industrial gas turbines under licence from General Electric O&G. It also repairs and refurbishes single buoy mooring (SBM) and valves. Other than that, SKP also supplies, installs, commissions and maintains point of sale systems for petrol stations as well as asset management services for offshore installation and offshore communication systems.

NOTABLE JV PARTNERS
SKP will have more international partners. To recap, SapCrest has various international O&G players as partners and they include Seadrill, Subsea 7, PED, Larsen & Toubro and General Electric Oil & Co, while Kencana has Saipem SPA and Leighton International Ltd as its partners. Hence, as a merged entity, SKP will have better access to global markets, technology and production know-how as SKPs partners could provide timely assistance if need be. Also, thanks to its large partnership base, SKP will be able to enjoy a higher level of efficiency and effectiveness in accessing new markets, collaborating with suitable R&D partners as well as acquiring any critical industry knowledge along the way.

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TARGET MARKET
Covers mostly all regions. SKP target markets include Malaysia, regional countries (Asia), neighbouring regions (Australasia and Middle East), emerging Latin America (Brazil) and North American markets. This wide geographical spread bodes well for SKP as Infield Systems Limited (ISL) had forecasted that the total offshore infrastructure capex between 2011 and 2015 will come to about USD298bn, representing a growth of 42% compared to the previous 5-year period. Such immense capex spending will give rise to more business opportunities for SKP. Figure 6: Offshore O&G capex by region (2011-2015)
Malaysia 5%

North America 31%

Regional 21%

Emerging 19%

Neighbour 24%

Source: OSK, Prospectus

Malaysias capex expected to increase by 121%. According to ISL, the total offshore infrastructure capex in Malaysia is expected to increase to about USD20.0bn (2011-2015) compared to USD11.6bn (2006-2010) and this growth is expected to be driven by a significant increase in the number of fields being brought into production. Hence, over the next few years, ISL forecasts a total of 73 new projects developments being rolled out in Malaysia. Capex in other Asian countries expected to be steady. The offshore capex in the Asian region (excluding Malaysia) is expected to peak only in 2012 at around USD16bn and thereafter, expected to remain relatively steady with an annual average of USD14.6bn p.a. between 2012 and 2015. Having said that, the capex is still expected to show an increase of 52% over the next 5 years, compared to the previous 5-year period.

YARD FACILITIES
Lumut Fabrication Yard. This yard takes up a total area of 192acres and has a fabrication capacity of 60k tonnes p.a. The covered fabrication workshops have a total area of 85.6k sq m, which allows fabrication activities to be carried out 24 hours a day under all weather conditions. Finally, its yard space, geographical diversity and raw material arrangement have enabled this yard to take on various steel fabrication works for the O&G industry as well as general industry engineering and specialty engineering for aviation structures. Labuan Shipyard. This shipyard builds a wide range of vessels with increasing sophistication and complexity, ranging from fishing trawlers to chemical and clean product tankers. Besides servicing small coastal crafts, cargo ships and landing crafts, it also caters to the repair and maintenance needs of the Royal Malaysian Navy, especially vessels that are stationed in East Malaysia. Besides that, the Labuan shipyard has also constructed a broad spectrum of offshore structures and platforms, including models, topsides, living quarters and bridges.

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OSK Research

ORDERBOOK AND TENDERBOOK

Strong orderbook of RM13.5bn. Of this total, the EPCIC business segment contributes the biggest share which amounts to RM11.2bn whereby RM9.1bn comes from SapuraCrest while the balance RM2.1bn from Kencana. The second highest contributor is the drilling business segment, whose share comes to RM1.3bn, while the remaining RM0.9bn and RM0.1bn come from marine services and O&M respectively. Figure 7: Orderbook by value
Marine Services 7%
Drilling 9%

Figure 8: Orderbook by geographical

Others 1% Southeast Asia 47%

O&M 1%

Australia 19%

EPCIC 83%

Brazil 33%

Source : OSK, SKP

Source : OSK, SKP

INVESTMENT HIGHLIGHTS
Becoming a full-fledged EPCIC provider. This merger would allow SKP to secure more turnkey EPCIC projects, both globally and locally. Larger clientele base to expand its business. Kencana would be able to share its clientele base with SapCrest and vice versa, hence allowing the merged entity to capitalize on any O&G business opportunities much faster. Ultimately, this will allow the group to increase its regional footprint and hence, putting it in a stronger position to secure new regional O&G services job moving forward. Economies of scale in operations. With its combined pool of skills, experiences, competencies and knowledge, SKP will have proficient human resources at all levels of management. The integration could also lead to better operational, procurement and administrative efficiencies. A better platform to raise capital from the global equity and debt capital markets. With a stronger balance sheet and a much larger market capitalization. SKP can elevate its profile and enhance the liquidity of its shares. Thanks to its size, the merged entity will be able to attract more interest from institutional and foreign investors and hence, giving it better access to capital markets whenever it needs to raise funds. Ability to secure turnkey EPCIC projects. Since the merged entity has a larger combined balance sheet as well as larger and more diversified asset base, SKP will have the opportunity to bid for and secure larger and more complex EPCIC projects, both locally and globally. This will enable the company to capture higher margins. Benefit from cross-selling activities. Given that both Kencana and SapuraCrest have their own separate target markets and clienteles prior to the merger, they will be able to cross-sell their products to each others target markets and clienteles post-merger. This should result in higher revenue being realized moving forward. Cost savings from procurement optimization. After the merger, SKP could consolidate the purchases of raw materials and services. With economies of scale in procurement, SKP could get more favourable prices for its raw materials and the resultant cost savings would ultimately lead to higher profit margins in the future.

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Higher chances of getting the next marginal oilfield. Relative to its local peers as well as some of its foreign competitors, SKP stands a better chance in securing the next marginal oilfield because: (i) it already has the required expertise as it clinched the first marginal gas field deal the Berantai field, (ii) SKP already has a ready foreign partner, Petrofac, (iii) post-merger, SKP will be very much involved in the upstream O&G segment, and (iv) with a larger asset base, it would be easier for SKP to raise new financing. Hence, we would not be surprised if SKP gets a second marginal oilfield deal. To recap, Malaysia has about 106 marginal oilfields that contain 580m barrels of oil equivalent (boe).

RISKS OF INVESTMENT
Operations affected by oil price fluctuations. Given that SKPs customers mainly operate in the offshore O&G industry, SKPs operations would be highly dependent on the level of activities in this industry which, in turn, is influenced by the price of oil. For example, at a higher oil price, SKPs customers would be more willing to operate at full capacity, leading to higher offshore exploration, development and production activities. Substantial competition in the global market. Since SKP is a much bigger entity now and cannot depend entirely on the local market, it is expected to face substantial competition when operating in the global market. In fact, some of its competitors may even have a longer track record, a larger asset base, more experience, as well as greater financial, technical and marketing capabilities. At the end of the day, SKP has to contend with more formidable competitors in the global O&G arena. Fluctuation in raw material prices. SKPs major raw material is steel and it is used mainly for its offshore installations, hook up and commissioning, maintenance and fabrication of new O&G production facilities. We understand that most of the contracts which SKP enters with its customers are on a fixedcost basis since its customers usually purchase the steel to be used by SKP. However, there are also certain instances where SKP will be required to purchase steel supplies as part of the lump sum contract and hence, any steel price increases after the lump sum contract has been fixed would be borne by SKP. Reliant on continuous discovery of hydrocarbon reserves. SKP principal activities will be dependent on the continuous discovery of hydrocarbon reserves in the global market and hydrocarbons are a nonrenewable fossil fuel that depletes over time. Hence, if there is any slowdown in new hydrocarbon discovery, the level of utilization of its operations will be impacted to a certain extent. Forex risk. Some portions of SKPs revenue and purchases are denominated in foreign currencies, particularly in USD and AUD. Hence, it is exposed to forex fluctuations if there is a mismatch between the amount and timing of both receipts and payments in foreign currencies. Also, it could suffer from substantial forex losses if the foreign currencies move unfavourably against the Malaysian Ringgit amid huge timing differences in receipts and payments. Potential labour shortages or rising labour cost. SKPs operations are dependent on skilled, knowledgeable and experienced workers who have the proficiency to operate highly advanced technology. As such, it could be affected by labour shortages or rising labour cost in view of the limited supply of qualified people in the O&G industry. Moreover, this situation could be exacerbated by the increasing competition by O&G players to secure the right talent. Still dependent on a few major customers. Despite gradually morphing into a global O&G company, SKPs existing operations are still very much dependent on a few major customers, such as Petronas and its PSC contractors. Hence, if Petronas changes its policies for new contract awards, SKP may face more intense competition in the domestic market. Integration risk. This is an inherent risk for SKP as the merger of 2 companies with different cultures, operation processes, practices and policies would likely bring about some integration friction. Besides internal friction, the merger may also affect the terms and conditions set out in some of its strategic alliances.

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OSK Research

VALUATION AND RECOMMENDATION

Initiate with a Buy recommendation. We are initiating coverage on SKP with a Buy recommendation and our fair value for the merged entity stands at RM2.88, based on a FY13 PER of 20x. We are using a higher PER multiple of 20x for SKP despite the average PER valuation at 15x for its global peers. This is mainly due to the premium accorded to local O&G companies (with the average PER valuation for SKPs local peers also at 20x) since they appear to enjoy some form of support, especially from Petronas, when operating in the local O&G environment. As such, we believe it would be reasonable for SKP to be given a PER valuation of 20x, in line with the average PER for its local peers. Finally, as both Kencana and SapCrest have a good delivery track record, we expect the merged entity to continue clinching deals awarded by Petronas and its PSC contractors moving forward. Kencana and SapCrests FV technically worth RM3.61 and RM5.64 respectively. Based on our fair value of RM2.88 for the merged entity (that gives a market capitalization of RM14.4bn), Kencana should technically be worth about RM3.61 (RM14.4bn/5.0bn shares of SKP x 2.5bn shares of SKP/1.993bn shares of Kencana), while SapuraCrest should be worth RM5.64 (RM14.4bn/5.0bn shares of SKP x 2.5bn shares of SKP/1.276bn shares of SapuraCrest) Figure 9: Peers valuation

Peers

Bloomberg Mkt Cap Ticker USDbn SPM IM KEP SP TEC FP 601808 CH PFC LN SMM SP SUBC NO BAB MK MMHE MK MDR US DLG MK 18.8 12.8 10.4 9.2 7.7 6.1 3.9 3.8 3.7 3.6 2.7 1.8

Saipem Keppel Corp Technip China Oilfield Services Petrofac Sembcorp Marine Subsea 7 Bumi Armada SKP MMHE McDermott Dialog Average (All peers) Average (BAB, MMHE & DLG)
Source: OSK, Bloomberg

PE FY1 (x) 16 12 19 16 15 16 19 21 16 23 12 28 18 24

PE FY2 (x) 13 13 15 14 13 14 13 17 15 21 9 23 15 20

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APPENDIX PEERS BACKGROUND

Saipem SPA (Saipem). The company is listed in Italy and it is involved in the provision of engineering, procurement, project management and construction services in the O&G industry. Keppel Corporation (Keppel). The company is listed in Singapore and it is involved in the offshore oilrig, shipbuilding and ship repair and services, environmental engineering, power generation, logistics and data centres, property development and investment as well as property fund management and investments. Technip (Technip). The company is listed in France and it is involved in project management, engineering and construction services for the O&G industry. China Oilfield Services Limited (China Oilfield). The company is listed in the Peoples Republic of China and it is involved in the provision of offshore oilfield services, including drilling services, well services, marine support and transportation services and geophysical services, sale of logging equipment, leasing of geophysical vessels, provision of drilling fluids services and provision of drilling and work over services. Petrofac Limited (Petrofac). The company is listed in the UK and it is involved in the provision of facilities solutions to the O&G production and processing industry, engineering and construction services, offshore engineering and operations, engineering, training services and productions solutions, energy developments and corporate services. Sembcorp Marine (Sembcorp). The company is listed in Singapore and it is involved in the rig enhancement and upgrading services, ship and rig repair and other related services, steel fabrication works, marine and general electronic and electrical works, provision of tugging and sea transportation services, research and development in offshore and marine technology and provision of dormitory housing services. Bumi Armada Bhd (Bumi Armada). The company is listed in Malaysia and it is involved in the provision of marine transportation services, floating production, storage and offloading (FPSO) services as well as vessel construction, engineering and maintenance services to the offshore O&G companies. Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE). The company is listed in Malaysia and it is involved in O&G engineering and construction works, marine conversion and repair, sludge disposal management and provision of repair services and dry docking of liquefied natural gas carriers. McDermott International Inc (McDermott). The company is listed in the Republic of Panama and it is involved in the provision of engineering, procurement, construction and installation services for the O&G industry. Dialog Group Bhd (Dialog). The company is listed in Malaysia and is involved in the provision of engineering, procurement, construction and commissioning services as well as plant maintenance services. Its other business activities include selling petroleum to oil, gas and petrochemical industries as well as marketing specialty chemical and equipments.

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EARNINGS FORECAST

FYE Jan (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA (%) PBT (%) Net Profit (%) ROE (%) ROA (%) Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%)

FY6/10 4347.1 546.6 535.8 308.2 6.2

-

FY6/11 4672.6 646.6 688.1 454.5 9.1

-

FY1/12f 4848.1 895.5 917.9 600.8 12.0 2.0

FY1/13f 5089.5 1071.1 1102.5 721.6 14.4 2.5

FY1/14f 5311.0 1121.2 1164.1 761.9 15.2 2.5

12.6 12.3 7.1

-

13.8 14.7 9.7 8.8 3.9

18.5 18.9 12.4 10.6 5.3

21.0 21.7 14.2 11.5 5.8

21.1 21.9 14.3 11.0 5.7

7584.7 4095.5 11680.2 2752.4 1343.2 3432.6 5495.2 0.4

7692.4 3624.6 11316.9 1564.6 2059.9 3732.6 6019.7 0.5

7789.3 4558.0 12347.3 1678.4 2879.5 4032.6 6636.2 0.3

7876.5 5538.5 13415.0 1809.4 3729.1 4332.6 7273.0 0.2

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OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated (NR): Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. However, information and opinions expressed will be subject to change at short notice, and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. The company, its directors, officers, employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. Distribution in Singapore This research report produced by OSK Research Sdn Bhd is distributed in Singapore only to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with, this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd ("DMG"). All Rights Reserved. No part of this publication may be used or re-produced without expressed permission from OSK Research. Published by OSK Research Sdn. Bhd., 6th Floor, Plaza OSK, Jalan Ampang, 50450 Kuala Lumpur Printed by Xpress Print (KL) Sdn. Bhd., No. 17, Jalan Lima, Off Jalan Chan Sow Lin, 55200 Kuala Lumpur OSK RESEARCH SDN. BHD. (206591-V) (A wholly-owned subsidiary of OSK Investment Bank Berhad) Kuala Lumpur
Malaysia Research Office OSK Research Sdn. Bhd. 6th Floor, Plaza OSK Jalan Ampang 50450 Kuala Lumpur Malaysia Tel : +(60) 3 9207 7688 Fax : +(60) 3 2175 3202

Hong Kong
OSK Securities Hong Kong Ltd. 12th Floor, World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

Singapore
DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211

Jakarta
PT OSK Nusadana Securities Indonesia Plaza CIMB Niaga, 14th Floor, Jl. Jend. Sudirman Kav. 25, Jakarta Selatan 12920 Indonesia Tel : (6221) 2598 6888 Fax : (6221) 2598 6777

Shanghai
OSK (China) Investment Advisory Co. Ltd. Room 6506, Plaza 66 No.1266, West Nan Jing Road 200040 Shanghai China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633

Phnom Penh
OSK Indochina Securities Limited No. 1-3, Street 271, Sangkat Toeuk Thla, Khan Sen Sok, Phnom Penh, Cambodia Tel: (855) 23 969 161 Fax: (855) 23 969 171

Bangkok
OSK Securities (Thailand) PCL 10th Floor ,Sathorn Square Office Tower, 98, North Sathorn Road,Silom, Bangrak, Bangkok 10500 Thailand Tel: +(66) 862 9999 Fax : +(66) 108 0999