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Disclaimer
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liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change
without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any
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http://research.uobkayhian.com
MICA (P) 048/03/2011
RCB Regn. No. 198700235E
2
Investment Highlights• Keppel Corp and SembMarine – Share prices to remain firm on strong contract wins. Bagged US$9b mega contracts from
Brazil. Next, we expect non-Petrobras contracts to return in 4Q12 and 1Q13 after a breather.• Small-cap oil service stocks are at deep discounts to large caps. Significantly underperformed oil price.• 2013 should be a better year for small caps. A new offshore support vessel (OSV) cycle has finally begun. Balance sheets
de-gearing.• Suggest a bottom-up strategy for small-cap outperformers in early OSV upcycle.• Top stock picks: Keppel, Ezion; Longer-term BUYs: Ezra and Swiber.
Source: UOB Kay Hian
Company Rec Price @ Target Mkt Cap PE (x) P/B (x) 2013 2013 Net GearingTicker 16 Aug 12 Price (US$m) 2012 2013 2014 Currrent 2012 2013 2014 ROE (%) Yield (%) (%)
HEAVY ENGINEERING SHIPYARDSKeppel Corp KEP SP BUY 11.52 13.00 16,516 11.3 15.3 15.9 2.5 2.5 2.4 2.2 16.0 3.3 31.6 Sembcorp Ind SCI SP BUY 5.66 6.20 8,077 13.6 12.0 10.1 2.5 2.2 2.0 1.8 17.4 3.2 2.3 Sembcorp Marine SMM SP BUY 5.09 5.80 8,484 20.0 18.1 13.7 4.7 4.4 3.9 3.3 22.6 2.7 (51.4)Average 14.3 15.5 13.3 3.3 3.0 2.7 2.4 3.1
OIL SERVICESOffshore & Subsea ContractorsKreuz KRZ SP NR 0.305 n.a. 136 3.6 2.9 2.6 1.0 0.8 0.7 0.5 25.5 0.0 15.8 Mermaid Maritime MMT SP NR 0.275 n.a. 172 616.1 n.a. 13.1 0.5 0.4 0.4 0.4 (0.7) 0.0 13.1 Swiber SWIB SP BUY 0.625 0.86 304 8.2 5.6 4.4 0.73 0.7 0.6 0.5 13.4 0.0 124.8
OSV OwnersCH Offshore CHO SP NR 0.435 n.a. 245 7.4 8.9 7.4 1.0 n.a. 1.0 0.9 10.6 6.3 (27.1)Ezion Holdings EZI SP BUY 1.08 1.42 734 11.3 6.8 5.6 1.9 1.9 1.5 1.2 24.7 0.0 66.1 Ezra EZRA SP BUY 1.06 1.39 828 11.2 9.3 6.7 0.84 0.8 0.8 0.7 8.7 0.0 102.3 Falcon Energy FALE SP NR 0.225 n.a. 146 13.8 n.a. n.a. 0.8 n.a. n.a. n.a. 13.5 n.a. 57.7
OSV ShipyardsASL Marine ASL SP HOLD 0.615 0.60 207 8.0 5.5 4.7 0.7 0.7 0.7 0.6 12.6 3.3 43.9 Jaya JAYA SP NR 0.54 n.a. 332 n.a. n.a. n.a. 0.90 n.a. n.a. n.a. n.a. n.a. 17.3 Marco Polo Marine MPM SP NR 0.335 n.a. 91 5.5 4.8 4.3 0.8 0.8 0.7 0.6 15.4 0.9 25.5 Nam Cheong NCL SP NR 0.186 0.26 284 6.6 6.0 5.4 1.8 1.5 1.2 1.0 22.1 3.3 41.1 Otto Marine OTML SP NR 0.088 n.a. 199 n.a. n.a. 17.6 0.7 0.6 0.6 0.6 5.3 0.0 162.2 STX OSX SOH SP NR 1.64 n.a. 1,545 8.3 8.6 8.7 2.60 2.5 2.2 1.7 26.2 4.0 0.8 Average 63.6 6.5 7.3 1.1 1.1 0.9 0.8 1.6
A Tale of Two Fortunes • Small-cap oil services
significantly underperformed oil price and large-cap rig builders.
• In the oil cycle of 2003-08, all stocks synchronised with oil price.
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Keppel (LHS)
(S$) (US$/bbl)
WTI Oil
Price
Keppel Corporation
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Sembcorp Marine
(LHS)
(S$) (US$/bbl)
WTI Oil Price
SembCorp Marine
Large Caps
Source: UOB Kay Hian
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Sembcorp Ind
(LHS)
(S$) (US$/bbl)
WTI Oil Price
Sembcorp Industries
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Sw iber (LHS)
(S$) (US$/bbl)
WTI Oil Price
Sw iber Holdings
0.00
0.20
0.40
0.60
0.80
1.00
1.20
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Ezion (LHS)
(S$) (US$/bbl)
WTI Oil Price
Ezion Holdings
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Ezra (LHS)
(S$) (US$/bbl)
WTI Oil Price
Ezra Holdings
Source: UOB Kay Hian
Small Caps
A Tale of Two Fortunes Large Caps
Source: UOB Kay Hian Source: UOB Kay Hian
Small Caps
• P/B vs oil price also tells of a sector of two fortunes – a recovery in ship builders’performance since 2009, but lacklustre in small-cap oil service stocks.
0.0
1.0
2.0
3.0
4.0
5.0
2004 2006 2008 2010 2012
0
50
100
150
200
Keppel (LHS)
(x) (US$/bbl)
WTI Oil Price
Keppel Corporation
0.01.0
2.03.0
4.05.0
6.07.0
8.0
2004 2006 2008 2010 2012
0
50
100
150
200Sembcorp Marine
(LHS)
(x) (US$/bbl)
WTI Oil Price
SembCorp Marine
0.0
1.0
2.0
3.0
4.0
5.0
2004 2006 2008 2010 2012
0
50
100
150
200
Sembcorp Ind
(LHS)
(x) (US$/bbl)
WTI Oil Price
SembCorp Industries
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2004 2006 2008 2010 2012
0
50
100
150
200
Sw iber (LHS)
(x) (US$/bbl)
WTI Oil Price
Sw iber Holdings
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2004 2006 2008 2010 2012
0
50
100
150
200
Ezion (LHS)
(x) (US$/bbl)
WTI Oil Price
Ezion Holdings
0.0
1.0
2.0
3.0
4.0
5.0
2004 2006 2008 2010 2012
0
20
40
60
80
100
120
140
160
Ezra (LHS)
(x) (US$/bbl)
WTI Oil Price
Ezra Holdings
Unloved and Forgotten • In the last one year, all
three segments -
1) offshore & subsea contractors, 2) OSV owners, and 3) OSV shipyards
– of the small-cap oil services sector underperformed the FSSTI despite a firm oil price.
Offshore & Subsea Contractors OSV Owners
Source: UOB Kay HianSource: UOB Kay Hian
OSV Shipyards
Source: UOB Kay Hian
60.0
70.0
80.0
90.0
100.0
110.0
Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
(End Jun-11=100)
FSSTI
Offshore
Contractors
60.0
70.0
80.0
90.0
100.0
110.0
Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
(End Jun-11=100)
FSSTI
OSV Ow ners
70.0
80.0
90.0
100.0
110.0
Jul 11 Oct 11 Jan 12 Apr 12 Jul 12
(End Jun-11=100)
FSSTI
OSV Shipyards
Last Cycle’s Binge• Divergence of oil
services stocks from oil price and large caps is due to:
a) fleet oversupply,b) OSV weak charter rates,c) sparse shipbuilding orders, and d) highly-geared balance sheets.
OSV Orders vs OSV Shipyards’ P/B
Worldwide OSV Investment
Source: Clarksons, UOB Kay Hian
Source: Clarksons, UOB Kay Hian
5.2 6.6 5.7 4.8 6.5
13.8
22.4
41.738.2
13.6
26.6
42.0
15.7
0
10
20
30
40
50
2000 2002 2004 2006 2008 2010 YTD
0
200
400
600
800
1000
(US$b) (units)
0
200
400
600
800
1000
2000 2003 2006 2009 2012
(Units)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0(x)
AHTS Deliveries
86112
133
180
296
262
194
236
4822
10
50
100
150
200
250
300
350
2005 2007 2009 2011 2013F 2015F
Source: Clarksons, UOB Kay Hian
Source: Fernley Offshore Supply
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
Term fixture rates - AHTS
World Wide (US$)
AHTS 7 - 10,000 BHP AHTS 10,000 + BHP AHTS 5 - 6,999 AHTS 7-9,999 BHP
AHTS 10-11,999 BHP AHTS 12-16,499 BHP AHTS 16,500 BHP+
AHTS Time-Charter Rates
7
Offshore LifecycleOSV Deployments
Primary: Support: Primary: Support: Primary: Support: Primary: Support: Primary: Support: Primary: Support:
Seismic
VesselChase boats Jack-up AHTS
Fixed
platform
Accommodati
on unit
Fixed
platformPSV
Fixed
platform
Accommodati
on unit
Fixed
platform
Accommodati
on unit
Semi-
submersiblePSV
Floating
platformAHTS
Floating
platformStandby boat
Floating
platformAHTS
Floating
platformAHTS
Drillship Standby boatSubsea
structuresPSV
Subsea
structuresCrew boat
Subsea
structuresPSV
Subsea
structuresPSV
Crew boat Standby boat DSV Standby boat Standby boat
TugHeavy
lift/craneROVSV
Heavy
lift/crane
Heavy
lift/crane
DSV Pipelayer DSV DSV
ROVSVWell
stimulationROVSV ROVSV
Pipelayer Pipelayer Pipelayer
Installation of platforms,
subsea structures &
pipelines
Supply & maintenance of
production units
Extend field production &
tie in fields
Partial or complete
removal of installations
Offshore Field Lifecycle
Required OSV
Surveying Exploration Development/Construction Production Facilities upgrade Decomissioning
Seismic surveying & core
drilling
Well drilling with mobile
offshore drilling units
Source: STX OSV, UOB Kay Hian
8
Long-Term, Peak & Trough Valuations
Current P/B vs Long-term, Peak And Trough P/Bs
Source: UOB Kay Hian
Oil services stocks (excluding STX OSV) on average:
• 49% discount to long-term P/B mean
• 77% discount to peak P/B in 2007
• 36% above trough P/B in 2009
Sector P/B P/B P/BSh Price Market Current P/B P/B P/B Current/ Current/ Current/ 2012 2013 2014 PE
Company Ticker 13 Aug 12 Cap P/B LT Mean Trough Peak LT Mean Trough Peak PE PE PE LT Mean(S$) (US$m) (x) (x) (x) (x) (%) (%) (%) (x) (x) (x) (x)
Large-cap ShipyardsKeppel Corp Ltd KEP SP 11.52 16,527 2.5 2.4 1.3 5.1 3 97 (51) 11.3 15.3 15.9 9.6 Sembcorp Marine SMM SP 5.09 8,490 4.7 3.3 1.9 6.4 41 146 (26) 20.0 18.1 13.7 12.3 Sembcorp Indus SCI SP 5.66 8,083 2.5 2.1 1.2 4.2 17 106 (42) 13.6 12.0 10.1 12.5
Small-cap Oil Services StocksOffshore & Subsea ContractorsKreuz Holdings KRZ SP 0.305 136 1.0 1.8 n.a. n.a. (44) n.a. n.a. 3.6 2.9 2.6 12.4 Mermaid Maritime MMT SP 0.275 172 0.4 1.8 0.3 2.8 (76) 58 (84) 616.1 n.a. 13.1 12.4 Swiber Holdings SWIB SP 0.625 304 0.7 1.8 0.3 7.0 (60) 114 (90) 8.2 5.6 4.4 12.4
OSV OwnersEzra Holdings EZRA SP 1.06 828 0.8 1.9 0.4 3.1 (56) 135 (74) 11.2 9.3 6.7 9.7 Ch Offshore Ltd CHO SP 0.435 245 1.0 1.9 0.7 3.9 (47) 52 (75) 7.4 8.9 7.4 9.7 Ezion Holdings EZI SP 1.08 735 1.9 1.9 0.7 n.a. (0) 170 n.a. 11.3 6.8 5.6 9.7 Falcon Energy Gr FALE SP 0.225 146 0.8 1.9 1.0 n.a. (59) (20) n.a. 13.8 n.a. n.a. 9.7
OSV ShipyardsAsl Marine Hldgs ASL SP 0.615 207 0.7 1.9 0.4 1.9 (62) 72 (62) 8.0 5.5 4.7 10.5 Jaya Hldgs Ltd JAYA SP 0.54 332 0.9 1.9 0.4 4.0 (53) 156 (78) n.a. n.a. n.a. 10.5 Marco Polo Marin MPM SP 0.335 91 0.8 1.9 1.0 n.a. (57) (19) n.a. 5.5 4.8 4.3 10.5 Nam Cheong Ltd NCL SP 0.186 284 1.7 1.9 n.a. n.a. (10) n.a. n.a. 6.6 6.0 5.4 10.5 Otto Marine OTML SP 0.088 199 0.7 1.9 1.9 n.a. (64) (63) n.a. n.a. n.a. 17.6 10.5 Stx OSV Holdings SOH SP 1.64 1,546 2.6 1.9 n.a. n.a. 34 n.a. n.a. 8.3 8.6 8.7 10.5 Keppel & SembMarine - Average 3.6 1.6 5.7 15.6 16.7 14.8 Oil Services - Average (excl. STX OSV) 1.0 0.7 3.8 69.2 6.2 7.2
9
Rig Builders’ Valuations
• PE and P/B valuation expansion or contraction across a cycle is driven by oil price and contract wins.
• Upcycles and downcycles are typically steep.
• SMM, as a guide to a pure offshore yard play:
- 2009 trough PE is 3.5x
- Apr 11 peak PE is 21x in Apr 11
- Long-term average P/B mean is 12x
- P/B is 1.4x to 5.0x; long-term mean is 3.5x
• Our target prices for rig builders have factored in O&M yard businesses at 18x 2013F PE.
• Valuation is sensitive to oil price.
Source: UOB Kay Hian
Keppel Corp Sembcorp Marine
1-Year Forward PE 1-Year Forward PE
1-Year Forward PB 1-Year Forward PB
0.02.04.06.08.010.012.014.016.018.020.022.024.0
2003 2005 2007 2009 2011
20
40
60
80
100
120
140
160
(x) (US$)
1-yr Fwd PE (LHS)
WTI
Mean
+1SD
+2SD
-2SD
-1SD
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2003 2005 2007 2009 2011
20
40
60
80
100
120
140
160
(x) (US$)
1-yr Fwd P/B
(LHS)
WTI
Mean
+1SD
+2SD
-1SD
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2003 2005 2007 2009 2011
20
40
60
80
100
120
140
160
(x) (US$)
1-yr Fwd P/B
(LHS)
WTI
Mean
+1S
+2S
-1SD
0.02.04.06.08.010.012.014.016.018.020.0
2003 2005 2007 2009 2011
20
70
120
170
(x) (US$)
1-yr Fwd PE
(LHS)
WTI
Mean
+1S
+2S
-2SD
-1SD
10
Rig Builders Win Big
Quarterly Contract Wins vs Oil Price
Source: UOB Kay Hian
Keppel
Source: UOB Kay Hian
• Keppel (BUY/Target: S$13.00) has won S$8.3b worth of new contracts ytd, on track to meet our S$10b (S$6.3b from Petrobras) forecast for 2012 (forecast S$6b each for 2013 and 2014).
• SMM’s (BUY/Target: S$5.80) contract wins of S$8.1b ytd are also on track to meet our S$11b (S$7b from Petrobras) forecast for 2012 (forecast S$6b each for 2013 and 2014).
SMM
2,3
48
2,2
49
1,9
21
364
3,3
45
1,6
00
1,2
95
1,2
03
596
2,6
54
1,2
15
3,4
40
733
2,4
23
1,6
65
690
300
30 85
1,3
21
1,6
33
50 3
54
1,1
76
4,3
89
2,7
73
893
1,8
26
581 1,0
44
6,7
20
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12
TD
0
20
40
60
80
100
120
140
Contract Wins WTI Oil Price (RHS)
(S$m) (US$)
974 1
,50
21
,491
243
1,8
78
- 16
91
,479
1,8
30
3,0
03
60
04
35
400
2,3
29
2,7
55
20
0-
60
15
04
-6
80
-2
48
2,0
99
1,4
80
20
1,1
33
1,1
91 1,7
39
1,3
24
5,1
89
-
1,000
2,000
3,000
4,000
5,000
6,000
1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12
TD
0
20
40
60
80
100
120
140
Contract Wins WTI Oil Price (RHS)
(S$m) (US$/bbl)
11
What’s Next, After Petrobras Contracts?
• Non-Petrobras rig orders have been taking a breather after roaring orders for jack-ups and drillships in 4Q10 and 2011.
• Ytd, only 10 jack-up orders, of which 5 went to Keppel and SembMarine.
• Ytd, orders for 11 drillship orders, with SMM securing 2 orders from Sete Brasil for 6 Petrobrasunits. Keppel has secured none.
• Semi orders remain muted. Ytd, orders for 10 units. Excluding Keppel’s contract from SeteBrasil for 5 semis, non-Petrobras orders for 5 units in 1H12 was similar to 2H11’s order run-rate.
• We expect non-Petrobras contracts to return in 4Q12 and 1Q12. Traditionally, orderflow is stronger in 1Q and 4Q.
12
Oil Services – Deep In Value
Oil Services (All Stocks)
Source: Bloomberg, UOB Kay Hian
• Oil services stocks are very deep in value, at more than -1SD from long-term P/B mean.
Offshore & Subsea Contractors
OSV Owners OSV Shipyards
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2004 2005 2006 2007 2008 2009 2010 2011 2012
(x)
Mean+1SD
-1SD
+2SD
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
(x)
Mean+1SD
-1SD
+2SD
0.0
1.0
2.0
3.0
4.0
5.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
(x)
Mean+1SD
-1SD
+2SD
-
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
(x)
Mean
+1SD
-1SD
+2SD
-2SD
OSV Shipyards 1-yr Fwd
P/B (LHS)
(Excl STX OSV)
13
Finally, A New Cycle Has Begun
Worldwide AHTS Time-Charter Rates
Source: Fernley Offshore Supply Source: Fernley Offshore Supply
• A new cycle has begun, after 3 years of overcoming fleet oversupply from last cycle’s OSV orders.• OSV charter rates for ALL sizes of AHTS vessels – including the commoditised small- and mid-sized 5,000-
8,000bhp – are trending up. • However, OSV corporate earnings are still soft as existing time-charter contracts secured 2-3 years ago are
still resetting to lower charter rates.
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
Term fixture rates - AHTS
World Wide (US$)
AHTS 7 - 10,000 BHP AHTS 10,000 + BHP AHTS 5 - 6,999 AHTS 7-9,999 BHP
AHTS 10-11,999 BHP AHTS 12-16,499 BHP AHTS 16,500 BHP+
Worldwide PSV Time-Charter Rates
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
World Wide (US$)
PSV USD (3000 dwt+) PSV less than 750m2 deck PSV larger than 750m2 deck
14
Fleet Oversupply At Tail-end
AHTS Deliveries
Source: Clarksons, UOB Kay Hian
• 2012 is the last year of heavy AHTS deliveries.
• Fleet growth is expected to fall from 15% in 2012 to 1.5% in 2013 and 0.7% in 2014.
• Offshore support vessel (OSV) orders, as a % of orderbook, peaked at 23% in 2007-08. Orders now stand at 11% of orderbook, and will fall to <1% by end-13.
AHTS Fleet
Worldwide OSV Investment
OSV Orderbook As % Fleet
Month Fleet Orderbook Orderbook(Units) (Units) % of Fleet
Dec-00 4,750 208 4Dec-01 4,840 297 6Dec-02 5,005 307 6Dec-03 5,175 303 6Dec-04 5,326 382 7Dec-05 5,511 537 10Dec-06 5,744 899 16Dec-07 5,998 1,401 23Dec-08 6,404 1,491 23Dec-09 6,941 1,222 18Dec-10 7,431 1,138 15Dec-11 7,743 1,044 13Jun-12 7,891 876 11
86112
133
180
296
262
194
236
4822
10
50
100
150
200
250
300
350
2005 2007 2009 2011 2013F 2015F
5.2 6.6 5.7 4.86.5
13.8
22.4
41.738.2
13.6
26.6
42.0
15.7
0
5
10
15
20
25
30
35
40
45
50
2000 2002 2004 2006 2008 2010 YTD0
100
200
300
400
500
600
700
800
900
1,634 1,675 1,7161,798
1,899 2,0232,182 2,467
2,709
2,890
3,126 3,174 3,196 3,197
2.5% 2.4%
4.8%5.6%
6.5%
7.9%
13.1%
9.8%
15.4%
1.5%0.7%
0.0% 0.0%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2003 2005 2007 2009 2011 2013F 2015F0
2
4
6
8
10
12
14
16
18
Actual New Deliveries % Growth
(%)
15
Rising Fleet UtilisationAHTS Utilisation
Source: ODS-Petrodata, UOB Kay Hian
PSV Utilisation
Source: ODS-Petrodata, UOB Kay Hian
• AHTS and PSV fleet utilisation rates have been rising. • We expect charter rate increase to gain momentum when fleet utilisation surpasses 85-90%
72.8
71.8
73.672.0
70.7 70.170.7
74.375.6
73.1
77.3 76.5
75.874.7
75.1
77.3
77.3
88.8 88.8 88.8
86.388.2
87.2
85.4
86.6 86.8 86.886.6
85.6
86.487.3
88.3
87.6
90.5
58.3
62.5
78.3
82.6
85.7
86.4
86.4
81.883.3
81.0
80.0
85.7
89.5
78.983.3
94.4 94.4
50
55
60
65
70
75
80
85
90
95
100
Jan
11
Feb
11
Mar
11
Apr
11
May
11
Jun
11
Jul
11
Aug
11
Sep
11
Oct
11
Nov
11
Dec
11
Jan
12
Feb
12
Mar
12
Apr
12
May
12
Asia Pacific West Africa US GoM
(%)
87.0
87.0
88.688.6
86.6
88.688.8 87.5
91.3 91.5 91.7
91.8
93.1
96.6 95.7 93.4
93.4
96.397.6
96.3
93.9
90.7
88.0
91.8 90.1
94.4 94.5 94.5
94.9
96.3 96.3 96.3
97.698.8
76.975.6
80.480.2
81.4
78.4
80.681.0
83.9
87.0
85.1
87.887.9
86.7
83.4
88.2
87.4
70
75
80
85
90
95
100
105
Jan
11
Feb
11
Mar
11
Apr
11
May
11
Jun
11
Jul
11
Aug
11
Sep
11
Oct
11
Nov
11
Dec
11
Jan
12
Feb
12
Mar
12
Apr
12
May
12
Asia Pacific West Africa US GoM
(%)
16
Robust DemandAsia’s Offshore E&P Capex By Country (2006-15)
Source: Infield Systems, UOB Kay Hian
• Singapore’s small-cap oil service stocks are predominantly Asia-Pacific players.• Demand is healthy with offshore oil & gas capex generally growing at c.10% p.a.• Asia-Pacific’s offshore E&P capex forecast at US$87.1b for 2011-15, a 45% increase over 2006-10’s. • Malaysia leapfrogs to no. 1 spot (2011-15 capex: US$17.6b, +54% over 2006-10).• Indonesia is the comeback kid (US$10.2b, +25%).• India still seeing strong capex (US$13.2b, +32%).• Self-sufficiency in domestic subsidised oil price regimes is critical as imported oil would be a costly fiscal
burden.
5-Yr 2006-10 2011-15(US$m) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006-10 2011-15 %Chg % Total % Total
Malaysia 1,466 2,426 2,063 2,741 2,692 3,727 4,359 3,043 3,246 3,256 11,388 17,631 54 19 20
China 1,853 2,198 2,443 2,288 2,645 3,463 3,357 2,929 2,214 1,620 11,427 13,583 19 19 16
India 2,069 1,884 2,233 2,043 1,751 2,890 2,440 2,624 2,748 2,472 9,980 13,174 32 17 15
Thailand 2,219 1,946 1,987 1,246 1,712 1,801 1,991 2,499 3,013 3,115 9,110 12,419 36 15 14
Indonesia 2,987 1,778 1,013 860 1,541 2,152 2,347 2,446 1,904 1,374 8,179 10,223 25 14 12
Vietnam 621 672 1,016 1,010 1,756 1,332 1,808 1,794 1,353 1,574 5,075 7,861 55 8 9
Others 735 1,014 884 924 1,297 2,379 2,630 2,404 1,908 2,912 4,854 12,233 152 8 14
Total 11,950 11,918 11,639 11,112 13,394 17,744 18,932 17,739 16,386 16,323 60,013 87,124 45 100 100
17
Robust DemandAsia’s Offshore E&P Capex By Market Segment (2006-15)
• Asia is generally a shallow-water E&P region.• OSVs service the entire lifecycle of the E&P chain.• Asia is the largest fixed platform market, accounting for 31% of global fixed platform capex.• Fixed platform installations and pipe laying to account for 32% and 49% of 2011-15’s capex respectively.• Like the rest of the world, Asia’s deepwater E&P activities are rising.
Source: Infield Systems, UOB Kay Hian
5-Yr 2006-10 2011-15(US$m) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006-10 2011-15 %Chg % Total % Total
Fixed Platforms 3,461 3,925 3,716 4,295 5,817 6,262 5,791 5,585 5,401 4,489 21,214 27,528 30 35 32
Floating Platforms 1,146 967 878 788 1,235 1,494 1,397 1,579 1,455 1,270 5,014 7,195 43 8 8
Pipelines 7,054 6,058 6,156 5,048 6,034 8,965 9,331 8,391 7,574 8,430 30,350 42,691 41 51 49
Control Lines 236 309 243 138 251 524 629 542 561 444 1,177 2,700 129 2 3
Subsea Completions 53 659 646 844 56 498 1,784 1,644 1,399 1,690 2,258 7,015 211 4 8
Total 11,950 11,918 11,639 11,113 13,393 17,743 18,932 17,741 16,390 16,323 60,013 87,129 45 100 100
18
2-Pronged Share Price CatalystAHTS Time-Charter Rates vs. OSV Owner Sector’s P/B
Source: Fernley Offshore Supply, UOB Kay Hian Source: Fernley Offshore Supply, UOB Kay Hian
PSV Time-Charter Rates vs. OSV Owner Sector’s P/B
• P/B valuation has a good correlation with vessel charter rates.
• We see a 2-pronged share price catalyst: a) sector re-rating with PE & P/B expansion, and b) earnings growth.
• Balance sheets to improve with free cash flow from large orderbooks. Net gearing to fall from 55% to 25% in the next 3 years.
• Oil services stocks are high beta. Re-rating is usually exponential.
19
Ezion Holdings
• BUY/Target: S$1.42, based on 9.5x 2013 fully-diluted EPS.
• Fast-track growth strategy. Liftboatstake 18 months to come on-stream while service rigs take only 6 months.
• Net profit set to treble in 2012-14.
• Fleet doubled in the last one year from 6 to 15.
• Visible earnings growth backed by long-term vessel charters.
• New businesses are guided by a minimum ROE of 30%.
• Graining traction in Australia’s oil & gas logistics sector.
• Exploring funding alternatives. No new equity raising in next two years, except for strategic tie-ups.
Year to 31 Dec (US$m) 2010 2011 2012F 2013F 2014F
Net turnover 117 107 140 284 332EBITDA 47 62 88 177 206Operating profit 39 52 73 118 143Net profit (rep./act.) 40 58 80 108 132Net profit (adj.) 40 47 65 108 132EPS (US$ cent) 5.6 6.6 7.6 12.7 15.5PE (x) 15.2 13.0 11.2 6.8 5.5P/B (x) 3.6 2.7 1.9 1.5 1.2EV/EBITDA (x) 24.9 19.0 13.3 6.6 5.7Dividend yield (%) 0.0 0.0 0.0 0.0 0.0Net margin (%) 34.3 54.3 57.1 38.0 39.8Net debt/(cash) to equity (%) 32.3 41.4 116.3 74.2 44.7Interest cover (x) 21.4 91.0 84.4 10.7 11.6ROE (%) 27.1 29.2 26.2 24.7 23.7Consensus net profit - - 75 122 145UOBKH/Consensus (x) - - 1.07 0.88 0.91
Key Financials
Source: Ezion Holdings, Bloomberg, UOB Kay Hian
20
Ezra Holdings
• BUY/Target: S$1.39, based on 2013 PE of 12.0x, in line with Ezra’s long-term PE mean since 2004.
• Transformed into a global deepwater contractor from regional OSV player with the acquisition of Emas AMC in Mar 11.
• Merger of strengths – Ezra, a deepwater vessel provider, and EmasAMC, a deepwater subsea contractor.
• Subsea orderbook has surpassed US$1b vs US$250m in Apr 11.
• Subsea earnings to ramp up after turnaround from a loss in 1HFY12.
• Ezra’s net profit forecast to treble by 2014.
• Balance sheet’s net gearing has peaked and is forecast to fall to 73% by 2014.
Year to 31 Aug (US$m) 2010 2011 2012F 2013F 2014F
Net turnover 354 559 1,030 1,400 1,550EBITDA 90 88 153 177 216Operating profit 78 62 111 133 170Net profit (rep./act.) 76 40 70 92 126Net profit (adj.) 76 40 70 92 126EPS (US$ cent) 10.9 4.3 7.0 9.1 12.2PE (x) 7.7 19.8 12.0 9.3 6.9P/B (x) 1.0 0.9 0.8 0.7 0.7EV/EBITDA (x) 19.6 20.1 11.5 9.9 8.2Dividend yield (%) 1.4 0.0 0.0 0.0 0.0Net margin (%) 21.5 7.2 6.8 6.6 8.1Net debt/(cash) to equity (%) 78.6 96.3 92.8 88.6 73.0Interest cover (x) 7.5 3.6 4.5 4.6 5.3ROE (%) 13.5 5.6 7.5 8.7 10.8Consensus net profit - - 76 88 115UOBKH/Consensus (x) - - 0.92 1.05 1.10
Key Financials
Source: Ezra Holdings Ltd, Bloomberg, UOB Kay Hian
21
Swiber Holdings
• BUY/Target: S$0.86, based on 2013 PE of 7.7x – at 20% discount to long-term PE mean of 9.5x of OSV owner segment.
• Net profit set to double from US$42m in 2012 to US$85m in 2014.
• Roaring contract wins of >US$1b ytd (2011: US$920m). Tenderbook c.US$4b.
• Current orderbook US$1.6b vs US$752m a year ago.
• Reaping benefits of regional footprints – SEA, Indian, Middle East and recently, Gulf of Mexico.
• Economies of scale from squeezing more utilisation from the same fleet.
• Balance sheet’s high gearing is the main overhang. Net gearing has peaked in 2012 and is forecast to fall to 86% by 2014.
Year to 31 Dec (US$m) 2010 2011 2012F 2013F 2014F
Net turnover 466 654 915 1,076 1,258EBITDA 37 74 112 141 169Operating profit 22 54 86 113 139Net profit (rep./act.) 37 32 42 65 85Net profit (adj.) 37 32 42 65 85EPS (US$ cent) 6.1 5.4 6.1 8.9 11.4PE (x) 8.2 9.3 8.2 5.6 4.4P/B (x) 0.8 0.7 0.6 0.6 0.5EV/EBITDA (x) 28.8 14.2 9.5 7.5 6.3Dividend yield (n.a.) n.a. n.a. n.a. n.a. n.a.Net margin (%) 8.0 4.9 4.6 6.0 6.8Net debt/(cash) to equity (%) 101.3 124.8 126.3 116.1 86.5Interest cover (x) 1.8 3.3 4.0 5.0 6.0ROE (%) 12.0 9.4 10.4 13.4 15.2Consensus net profit - - 45 52 67UOBKH/Consensus (x) - - 0.93 1.25 1.27
Key Financials
Source: Swiber Holdings, Bloomberg, UOB Kay Hian
22
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