Report 1

Singapore O&M Radar
CAPITAL GOODS
EQUITY RESEARCH
Offshore & marine outlook for 2013
November 23, 2012
Record deliveries but leaner new contract orders as more line up at beauty parade
Action: We believe the recent price correction in Singapore offshore marine stocks offers a good buying opportunity, and reiterate our BUY on Keppel Corp, Sembcorp Marine and Sembcorp Industries. While we have cut our earnings and PT for Sembcorp Marine to account for lower margin expectations, we maintain our BUY rating on attractive dividend yield and strong orderbook. We maintain our Reduce rating on Cosco Corp and Yangzijiang and Neutral on STX OSV. Catalysts: Better-than-expected orderbook and margins; commercial shipbuilding upturn Our forecasts assume more subdued orderbook growth and margins in FY13 versus FY12, so any better-than-expected outcome will be a positive, in our view. We believe any sustained recovery in the commercial shipbuilding segment will take pressure away from the offshore rigbuilders. Key themes in this issue: Nomura estimates global offshore oil & gas capex to rise 12% y-y in 2013 to USD733bn (assuming a long-run oil price of USD95/barrel), with exploration spend accounting for 33% of capex by 2015, up from 26% in 2009. Anchor themes We believe offshore rigbuilders earnings in 2013 will be supported by strong new order intake in 2012/2013, with lower margins mostly factored in the share prices. We expect new order pace to slow in 2013, with fewer rig orders but more orders for vessels in the production phase of the offshore O&G cycle. Nomura vs consensus Our positive view on the sector is in line with market consensus view.
Research analysts Singapore Capital Goods Lisa Lee - NSL lisa.lee@nomura.com +65 6433 6979 Abhishek Nigam - NSFSPL abhishek.nigam@nomura.com +91 22 6723 5334
Competition heats up as rigs backlog gets delivered: We expect 2013 to

witness record deliveries, especially for JUs/drillships and could witness aggressive tactics by shipyards to secure new orders as more shipyard capacity comes on-stream.
Remain bullish on new orders for semi-subs: Given limited new build
deliveries and availability, semi-subs could witness some pent-up demand returning to the market. Offshore markets tight, but new orders elusive: Despite strong dayrates and utilization, new orders for rigs may remain subdued on macro concerns.
Fig. 1: Coverage Summary
Stock Keppel Corp (KEP SP) Sembcorp Marine (SMM SP) Sembcorp Industries (SCI SP) Cosco Corp (COS SP) Yangzijiang (YZJ SP) ST Engineering (STE SP) STX OSV* Rating BUY BUY BUY REDUCE REDUCE BUY NEUTRAL Price (S$) 10.27 4.25 4.79 0.89 0.87 3.52 1.39 Target (S$) 13.2 5.2 6.0 0.62 0.74 4.05 1.73 Upside/(Downside) 28.5% 22.4% 25.3% -29.9% -14.9% 15.1% 24.5%
Source: Bloomberg, Nomura estimates; pricing date 21st November 2012; *Our rating and target price for STX OSV are under review
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Singapore O&M Radar
November 23, 2012
Contents
3
Global Oil & Gas Capex outlook in 2013

3
With stubborn oil prices, global oil & gas capex set to rise
Offshore E&P markets in 2013

6
Tight offshore markets but subdued order momentum
Jack-Up: strong demand meets delivery surge
2013: mega year for JU deliveries
Semi-subs in 2013: why we remain bullish on new orders
11
Competition at the gates

11
Singapore offshore yards dominate for JUs, strong in semi-subs
13
Protecting the moat: how Singapore yards have done it?
16
Singapore yards position not impregnable
16
Rise of Brazil
18
Industry News and Events Appendix: Taking Stock Appendix: Valuations and market performance Appendix: Leading indicators of newbuild orders Keppel Corp Sembcorp Industries ST Engineering Sembcorp Marine Appendix A-1
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November 23, 2012
Global Oil & Gas Capex outlook in 2013

With stubborn oil prices, global oil & gas capex set to rise
Despite heightened macro concerns, especially with respect to the Eurozone slipping into a recession and the upcoming fiscal cliff in the US, we note that oil prices have remained stubbornly high with Brent trading at USD111/bbl (as on 20th Nov), up 24.7% from the low of USD89/bbl reached in June. Consequently, Nomuras European Oils team has forecast global oil and gas spend to grow 12% in 2013F. Strongest capex growth is expected in exploration, especially in deepwater and ultra-deepwater areas. Investment in deepwater facilities such as FPSOs, FSOs and LNG/FLNG projects are also expected by our European Oils team to remain robust. Although oil prices have been resilient of late, a materially lower oil price and a slower pace of project sanctioning by national and international oil companies (NOCs & IOCs) remain the key risks to our forecasts. Nomuras oil and gas team forecasts Brent oil at USD105/bbl in 2013F and USD100/bbl in 2014F, and have maintained a long-term price of USD95/bbl. Global oil & gas capex to grow strongly in 2013 Nomuras European Oil team has forecast 12% growth in global oil and gas capex for 2013 vs 8% growth in 2012 (assuming a long-run oil price of USD95/bbl) and believes that exploration spend is accelerating and would represent c.33% of global capex by 2015, up significantly from a low of 26% in 2009. For the 2012-15 forecast period, our European Oil team also estimates that capex will witness a CAGR of 5%.
Fig. 2: Global oil and gas capex growth

Nomura estimates 2013 global oil and gas capex to rise 12% y-y to USD733bn In 2013
900 800 700 600 33% 31% 29% 27% 25% 2015E 35%
USDbn
500 400 300 200 100 2003 2004 2005 2006

Global E&C Capex
2007
2008
2009
2010
2011
2012E
2013E
2014E
Global Exploration Capex
% Exploration (RHS)
Source: Wood Mackenzie, Pegasus Global, Company data, Nomura estimates
Capex for 2012 & 2013 higher than original forecasts Nomuras European Oil team expects actual global capex for 2012F to come in at USD655bn vs the previously estimated USD630bn. Global capex for 2013F is also expected at USD733bn vs the previously estimated USD663bn. The key change in 2013F capex was on account of the changed capex assumptions for Europe (mainly North Sea) and SE Asia to USD18.4bn and USD16.7bn, respectively.
November 23, 2012
Fig. 3: Global oil and gas capex 2013F vs original estimates

750 740 730 720 710 700 690 680 670 660 650 + 10.2 - 0.8 - 2.6 - 6.6 115
+ 4.5 + 9.8 + 16.7 + 6.4 + 0.9 + 7.9
105
+ 18.4
+ 4.4
100
95
Expected 2012 Brent
Actual 2012 Brent YTD
Source: Wood Mackenzie, Nomura estimates
Rise in spend to be driven by ultra-deepwater drilling and construction Ultra-deepwater drilling will be a key driving force behind the rise in global capex in 2013, in our view. While we believe exploration in frontier offshore areas in deepwater locations will be a key exploration theme in 2013, deepwater and ultra-deepwater investments in FPSOs, FSOs, and LNG/FLNG projects are also expected to get a boost. Growth in exploration capex to outpace overall global capex growth While we expect global oil and gas capex to record a 5%CAGR over 2012-15, we estimate exploration spend to come in at a CAGR of 10% over the same period, driven largely by our expected 13% rise in number of wells explored in deepwater areas during the same period, which we estimate will be underpinned by a 15% increase in blocks expected to be licensed out globally over the same time period. However, we expect offshore shallow water drilling to grow at a slower pace relative to deepwater wells.
Fig. 4: Number of deepwater exploration wells

Deepwater exploration wells set to accelerate in medium term
450 400 350 300
No of wells drilled
250 200 150 100 50 0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012E
2013E
Source: Wood Mackenzie, Spears & Associates, Nomura estimates
Growth in global capex underpinned by NOC capex growth Based on data from Wood Mackenzie, NOC capex is set to rise by 9% y-y in 2013 and normalise to c.40% of global spend over the medium term. Though investment decisions by NOCs and IOCs are driven by long-term oil prices and are not susceptible to short term volatility, in our view, heightened macro concerns seem to have left them reluctant to commit capex on large scale developments. This has been further compounded by the slower pace of decision making with respect to project sanctioning due to management changes, political issues and revised health and safety laws and technical standards for some projects.
2014E
Brent (USD/bbl)
110
USDmn
November 23, 2012
Fig. 5: NOC/IOC capex growth

NOC capex set to normalise to ~40% of global spend over medium term
800 700 600 43% 42% 41% 40% 39% 38% 37% 36% 35% 34% 2007 2008
IOC
USDbn
500 400 300 200 100 2006 2009 2010

NOC
2011E
2012E
2013E
2014E
33% 2015E
Global NOC Exposure (%)
Source: Wood Mackenzie, Pegasus Global, Company data, Nomura estimates
Risks to rise in upstream spend Key risks to Nomuras oil capex spend come from significantly lower oil prices, which could witness pressure on growing macro-economic concerns. Additionally, a slower rate of project sanctioning by national oil companies (NOCs) due to political and economic uncertainty could also affect offshore spend. Support for oil and gas spend is likely to come from continued investment in brownfield projects and marginal oil fields, which in our opinion have become viable given their lower breakeven oil prices of USD50-60/bbl.
November 23, 2012
Offshore E&P markets in 2013

Tight offshore markets but subdued order momentum
As we head into 2013, we expect demand for offshore rigs to remain strong, particularly in the deepwater and ultra-deepwater segment. However we note that a sizeable delivery schedule, especially for new premium jackup rigs and drillships will likely alleviate some of this current supply tightness. However, rig availability, especially for semi-subs, remains at an all-time low with only one newbuild semi-sub to be delivered in 2013 remaining un-contracted, according to our analysis. We also highlight that jack-up (JU) dayrates and utilisation, especially for higher specs, have shown considerable strength in recent months, and have moved up despite oil price volatility and global macro-economic nervousness.
Jack-Up: strong demand meets delivery surge

We believe a strong surge in deliveries in 2013 should help ease off some of the tightness in the premium JU market. Oil price volatility or macro-economic concerns regarding the global economy, however, are unlikely to have a significant impact as long as oil prices remain well above the threshold level for drilling, in our opinion. We also expect some tempering in JU newbuild prices in 2013 as capacity becomes available at yards and if new order inflow remains subdued. Strong JU utilization indicative of strength in deepwater Compared to semi-subs and drillships that are typically engaged in mega-projects and secure multi-year contracts, the demand for JUs tends to be shorter term, typically less than 12 months and is more sensitive to oil prices. Out of a total of 550 JU fixtures announced since Jan 2011, 395 or 72% were for 12 months or less duration. This leaves JUs more susceptible to changes in oil price levels and any slowdown in offshore activity is likely to be first captured in JU utilisation levels.
Fig. 6: JU utilisation vs oil prices

With charters being short term, JU utilisation closely tracks oil prices
100% % 95% 90% 85% 80% 75% 70% 65% 60% USD/bbl 140 120 100 80 60 40 20 0 160
Fig. 7: Avg. fixture term across JU categories

450 400 350 300 250 200 150 100 50 0 0-12 mths. JU 250-IC 13-24 mths. JU 300-IC 25-36 mths. 36-48 mths. JU 361-400-IC 49 months + JU Harsh High Spec number of fixtures
Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
JU utilis. (LHS) Brent price (RHS)
JU 301-360-IC
Source: Bloomberg, ODS Petrodata, Nomura research
Source: ODS Petrodata, Nomura research
However, despite volatile oil prices in the recent past, JU utilisation and dayrates have been steady and have in fact improved over the last quarter for high-spec categories.
November 23, 2012
Fig. 8: Worldwide JU fleet utilisation

85% 83% 81% 79% %
Fig. 9: JU (300 + cantilever) dayrates in GoM

130 USDK/day 125
120 77% 75% 73% 71% 69% 67% 65% 105 110 115
Oct-11
Nov-11
Dec-11
Jan-11
Jun-11
Jan-12
Jun-12
Oct-12
May-11
May-12
Mar-11
Mar-12
Feb-11
Jul-11
Feb-12
Apr-11
Aug-11
Sep-11
Apr-12
Jul-12
Aug-12
Sep-12
100
May-11
May-12
Jul-11
Feb-12
Feb-11
Mar-11
Mar-12
Jul-12
Oct-11
Aug-12
Aug-11
Sep-11
Nov-11
Dec-11
Utilisation for harsh high-spec JUs has been ~100% since April-12 and for 301-360IC and 361-400 IC categories has hovered around 94% (see the charts below). Dayrates for 301-360 IC and 361-400 IC categories crossed USD135K/day in October, and the strongest dayrate appreciation is witnessed in the harsh high-spec category which has seen a rise of 15% since January 2012.
Fig. 10: Utilisation across JU segments

100% % 95% 90% 85% 80% 75% 70% 65% 60%
Fig. 11: Dayrates across JU segments
230 210 190 170 150 130 110 90 70
Dayrates (USDK/day)
May-11
May-12
Jul-11
Feb-12
Feb-11
Mar-11
Mar-12
Jul-12
Sep-12
Jan-12
Jan-11
Jun-11
Jun-12
Oct-11
Nov-11
Dec-11
Aug-12
Aug-11
Sep-11
May-11
May-12
Mar-11
Mar-12
Jul-11
Feb-11
Feb-12
Oct-11
Jul-12
Nov-11
Dec-11
Aug-11
Sep-11
Aug-12
250-IC, 300-IC
301-360IC, 361-400IC
Harsh high spec
Sep-12
Jan-11
Jun-11
Jan-12
Jun-12
Oct-12
Apr-11
Apr-12
250-IC, 300-IC
301-360IC, 361-400IC
Harsh high spec
2013: mega year for JU deliveries

Even if the market for advanced JUs were to remain tight, we believe 2013 would be an eventful year for JU deliveries considering 47 vessels are scheduled for delivery and a total of 90 vessels are slated for delivery between 4Q12 and 2015. The 90 JUs to be delivered through to 2015 represent ~20% of the current fleet, on our numbers.
Fig. 12: JU delivery schedule by category

Year 2012 2013 2014 2015 Total <250-IC 1 3 1 5 >400-IC 1 250-IC 1 1 2 300-IC 5 7 2 14 301-360-IC 4 8 2 14 361-400-IC 6 21 8 35 Harsh High Spec 9 8 2 19 Total 16 47 23 4 90
Source: ODS-Petrodata, Nomura research
Sep-12
Jun-11
Jan-11
Jan-12
Jun-12
Oct-12
Apr-11
Apr-12
Oct-12
Apr-11
Apr-12
November 23, 2012
Additionally, a significant proportion of the current JU fleet remains stacked and could add to capacity if re-activated. According to latest data from ODS-Petrodata, current JU fleet comprises 471 rigs, of which 342 are drilling, 62 are stacked (warm/hot/cold) while another 45 are in the yard for work over with remaining being in transit/acceptance testing etc. Newbuild deliveries geared towards high spec segment With 68 out of 90 newbuilds scheduled to be delivered belonging to the high-spec segment, we believe the deliveries should ease some of the tightness in the premium JU segment. We do not, however, foresee strong capacity augmentation from reactivation of stacked fleet. Majority of the stacked rigs belong to lower-spec categories and hence, in our view, will either: 1) not be re-activated given relatively weaker demand 2) if re-activated, will likely not overcrowd the high-spec segments that are slated to witness a strong delivery schedule
Fig. 13: Jack-up stacked fleet composition

16 14 12 10 10 8 6 4 4 2 2 0 2 1 2 1 1 4 4 9 7 15
JU 250-IS
JU <250-MS
JU <250-IC
JU 200-MC
JU <250-IS
JU >300-IS
JU 250-MS
JU 250-IC
JU 300-IC
JU 300-IS
Semi-subs in 2013: why we remain bullish on new orders

In line with JUs, we believe drillships will also witness a strong delivery schedule with 20 vessels scheduled to be delivered in 2013 (Source: ODS-Petrodata). While this should alleviate some tightness in the deepwater and ultra-deepwater drillship segment, we expect the market for semi-subs to remain tight with only 1 semi-sub set to be delivered in 2013. Our argument for the inevitability of semi-sub orders is based on 1) limited new deliveries 2) record low newbuild availability; and 3) structurally higher oil prices sustaining demand for semi-subs. Whereas we believe the current drillship capacity will expand by 22% in 2013, the corresponding capacity expansion for semi-subs is a meagre 0.5%; only 1 semi-sub delivery vs current fleet of 214 semi-subs, according to our analysis. Besides limited deliveries, availability of newbuilds is also low with most semi-subs scheduled for delivery already contracted out. The semi-sub availability situation improves only marginally from 1 available newbuild in 2013 to 3 in 2014, according to our analysis.
JU Harsh Standard
JU <200-MC
JU 301-360-IC
November 23, 2012
Fig. 14: Semi-sub and drillship deliveries (2013-15)

25 21 20
20
15
10 6 5 1 0 2013 Drillship
2014 Semisubmersible
2015
Limited semi-sub capacity addition in 2013-15 We estimate the 13 newbuild semi-subs coming on stream in 2013-15 will expand current capacity (214 vessels) by only 6%. This contrasts with 48 drillship deliveries in 2013-15, which account for 51% of current fleet. Although weak vessel prices have induced drillers to order drillships over semi-subs, we expect at least some of the pentup demand for semi-subs to return in 2013.
Fig. 15: Newbuild (2013-15) as % of current fleet
Current fleet New deliveries (2013-15) Newbuilds as % of current fleet

Drillship 94 48 51%
Semisubmersible 214 13 6%
Semi-sub availability at an all-time low Besides newbuild deliveries, semi-sub availability also remains low. While a total of 18 semi-subs will be delivered between 2013 and18, according to ODS Petrodata, only 6 of these vessels remain un-contracted. Near term availability is even lower with only 1 semi in 2013 and 3 semis in 2014 still un-contracted (source: ODS Petrodata).
Fig. 16: Un-contracted semi-sub deliveries

Only 6 semi-subs to be delivered till 2015 that remain un-contracted
Rig Name Sevan UDW3 COSLProspector Sevan UDW4 West Mira North Dragon West Rigel Manager Sevan Drilling COSL Sevan Drilling Seadrill North Sea Rigs North Atlantic Drilling Rig Status Under construction Under construction Under construction On order Under construction On order Delivery Date 30-Dec-2013 15-Dec-2014 30-Jun-2014 15-Dec-2014 1-Jul-2015 1-Feb-2015 Market category Semi >7500 Semi Harsh Deepwater Semi >7500 Semi Harsh Deepwater Semi Harsh Deepwater Semi Harsh Deepwater Current Contract Status Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Delivery Year 2013 2014 2014 2014 2015 2015
November 23, 2012
Drillship availability also tight though improves in 2014 Drillship availability also remains low although it improves significantly for newbuilds to be delivered in 2014. In 2013, out of 20 drillships set to be delivered, only 7 remain available; however, in 2014 availability improves to 19 (out of 20 units to be delivered).
Fig. 17: Un-contracted drillship deliveries

Rig Name Dalian Developer ENSCO DS-7 Ocean Rig Athena Ocean Rig Skyros Pacific Khamsin Tungsten Explorer West Tellus Atwood Achiever Deepwater Asgard ENSCO DS-8 ENSCO DS-9 Maersk Drsh Tbn3 Maersk Drsh Tbn4 Noble Drsh Tbn8 Noble Sam Croft Ocean BlackLion Ocean BlackRhino Opus Drsh Tbn1 Opus Drsh Tbn2 Pacific Meltem Rowan Reliance Rowan Resolute Seadrill Drsh Tbn10 West Jupiter West Neptune West Saturn Atwood Admiral Rowan Drsh Tbn4 Samsung Drsh Tbn23 STX Offshore Drsh Tbn1 Manager Vantage Drilling Ensco Ocean Rig Ocean Rig Pacific Drilling Vantage Drilling Seadrill Atwood Transocean Ensco Ensco Maersk Drilling Maersk Drilling Noble Noble Diamond Offshore Diamond Offshore Opus Offshore Opus Offshore Pacific Drilling Rowan Rowan Seadrill Seadrill Seadrill Seadrill Atwood Rowan Not known Not known Rig Status Under construction Under construction Under construction Under construction Under construction Under construction Under construction Under construction Under construction On order On order Under construction On order On order Under construction On order On order Under construction On order On order On order On order On order On order On order On order On order On order On order On order Delivery Date 1-Feb-13 1-Jul-13 15-Nov-13 31-Oct-13 30-Apr-13 31-May-13 25-Aug-13 14-Jun-14 1-Jan-14 15-Aug-14 15-Nov-14 30-May-14 15-Jul-14 1-Sep-14 15-May-14 15-Dec-14 30-Jun-14 1-May-14 1-Oct-14 17-May-14 30-Oct-14 30-Jun-14 15-Nov-14 15-Aug-14 15-May-14 15-May-14 31-Mar-15 30-Mar-15 15-Feb-15 1-Oct-15 Market category Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship >7500 Drillship 3001-5000 Drillship <=3000 Drillship >7500 Drillship >7500 Drillship >7500 Drillship Harsh Deepwater Drillship Harsh Deepwater Drillship Harsh Deepwater Drillship >7500 Drillship >7500 Drillship >7500 Drillship Harsh Deepwater Drillship Harsh Deepwater Current Contract Status Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Not Contracted Delivery Year 2013 2013 2013 2013 2013 2013 2013 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 2015 2015 2015 2015
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November 23, 2012
Competition at the gates

With a record number of scheduled rig deliveries in 2013, we expect competition among yards to intensify given greater availability of building capacity and subdued new order momentum over the last year. We argue that new entrants such as Chinese and especially Brazilian yards will find it difficult to match the track record of Singapore yards especially for high-end rigs. In our view, Singapore yards market leadership and superior margins (relative to Chinese yards) are a function of: 1) strong understanding of rig complexity and design; and 2) repetitive orders for same design or from same customer. Though Singapore yards' competitive advantage is not impregnable, we believe they will maintain market share, especially for high-end rigs.
Singapore offshore yards dominate for JUs, strong in semisubs

With a market share of 64% for all JUs ordered in 2011, Singapore-based offshore yards Keppel and Sembcorp Marine remain the preferred choice for drillers looking to order jack-up (JU) rigs, in our view. Between the two, Keppel secured 28 of the 65 JUs ordered in 2010 and 2011 while SMM has had a market share of 20% with 12 JU orders, according to our analysis. UAE-based Lamprell and China based COSCO in contrast had a market share of 9% and 4% respectively (source: ODS-Petrodata). Singapore-based yards also remain key players in the semi-sub market, with new order share of 54% in 2011. There is stiff competition from Korean yards (especially Daewoo) although most of them are reeling under excess capacity from a slump in shipbuilding in Korea. Korean yards also dominate the market for drillships with a 74% share of 2011 new orders. While Keppel have been more conservative, it has not ruled out entry into the stiff contested drillship markets. Meanwhile, SMM, armed with an order for 5 drillships from Sete Brasil, is looking to gain market share, according to management.
Fig. 18: Jack-Up, Semi-sub and Drillship market share (based on vessels ordered in each year)
Singapore yards dominate market for JUs and are strong in semi-subs despite stiff competition from Korean yards, in our view
Keppel SMM Cosco Lamprell Others
JU market share 2010 2011 25% 51% 30% 13% 0% 4% 15% 9% 30% 22%
2012 17% 17% 6% 17% 44%
Semi-sub market share 2011 Keppel 14% SMM 0% Cosco 29% Daewoo 43% Hyundai 0% Others 14%
2012 45% 9% 0% 18% 18% 9%
SMM Daewoo Hyundai Samsung Others
Drilship market share 2010 2011 0% 0% 0% 14% 0% 31% 83% 29% 17% 26%
2012 23% 19% 8% 31% 19%
Keppel, SMM strong players in heavily ordered, higher-priced categories While Chinese and UAE-based yards have attempted to corner market share, we regard Singapore-based offshore yards as strong players in rig categories that are more in demand. Over the years, Singapore yards, through better understanding of rig complexity and strong relationships with key drilling companies, have moved up the rig value chain and gained expertise in building complex and advanced rigs that are more in demand today. According to data from ODS-Petrodata, 80% and 69% of all JU new orders in 2010 and 2011 belonged to the JU 361-400 IC and harsh high-spec category. Similarly, for semisubs it is noteworthy that no new orders have been awarded in the semi 5001-7500 ft category since 2008. All 18 semi-subs ordered in 2011 and 2012 ytd (there were no
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November 23, 2012
semi-sub new orders in 2010) belonged to semi > 7500 ft, harsh deepwater and harsh high-spec category.
Fig. 19: % of JUs ordered across categories

60% 50% 40% 30% 20% 10% 10% 0%
JU 250-IC JU 300-IC JU 301-360-IC JU 361-400-IC JU <250-IC JU >400-IC JU Harsh High Spec
Fig. 20: % of Semi-subs ordered across categories

55% 42% 50% 45% 43% 36% 45%
35% 29% 27% 25%
40% 35% 30% 12% 25% 20% 15% 10% 5% 0% Semi >7500 2011 29%
29%
12% 0% 2% 5% 0% 0% 6% 5%
16% 9% 0% 6%
4%
18%
Semi Harsh Deepwater 2012
Semi Harsh High Spec
2010
2011
2012
As per ODS-Petrodata, Singapore is the top destination for JU 301-360 IC, 361-400 IC and harsh high-spec category for all JUs ordered since 2008. In the JU 361-400 IC category, 66% of all JU new orders since 2008 have gone to Singapore-based yards, followed by 28% to China-based yards. Chinese and UAE-based yards in contrast, are preferred for lower-spec Jus, for example, China cornered 80% of all JU new orders in 300-IC category while UAE secured all 100% and 50% of new orders since 2008 in 250 IC and <250 IC categories, respectively.
Fig. 21: Build country vs Jack-Up category (All jack-ups ordered since 2008)
Singapore yards dominate market for higher end JUs
Build Country Brazil China India Indonesia Singapore UAE USA Vietnam <250-IC 0% 42% 0% 8% 0% 50% 0% 0% >400-IC 0% 0% 0% 0% 100% 0% 0% 0% 250-IC 0% 0% 0% 0% 0% 100% 0% 0% 300-IC 0% 80% 0% 0% 5% 10% 0% 5% 301-360-IC 17% 0% 17% 0% 42% 25% 0% 0% 361-400-IC 0% 28% 0% 0% 66% 0% 6% 0% Harsh High Spec 0% 11% 11% 0% 79% 0% 0% 0%
Singapore also remains a top destination for high-spec semi-subs though there is stiff competition from South Korea. With the backing of Petrobras, Brazil yards have gained market share in the semi >7,500 ft category; however, we believe matching the execution of Singapore and Korean yards will be a key challenge given supply chain issues and shortage of trained work force. Likewise, we believe South Korea remains a location of choice especially in the harsh deepwater and harsh high-spec category.
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November 23, 2012
Fig. 22: Build country vs Semi-sub category (All semi-subs ordered since 2008)
Build Country Brazil China Singapore South Korea

Semi >7500 38% 19% 31% 13%
Semi 5001-7500 0% 0% 100% 0%
Semi Harsh Deepwater Semi Harsh High Spec 0% 0% 33% 0% 17% 0% 50% 100%
Protecting the moat: how Singapore yards have done it?

Superior margins a function of industry leading execution Superior margins at Singapore-based yards are a function of industry-leading execution, in our view. Over the years, we understand that Singapore yards have built upon their understanding of rig complexity and minimised delays and cost overruns. In contrast, the Chinese rig building industry, being a new entrant, is beset with instances of delays and cost increases.
Fig. 23: EBIT margins for KEP,SMM, COS

25% EBIT margin 20%
15%
10%
5%
0% 2007 Keppel
Source: Company Data, Nomura research
2008
2009 SMM
2010 Cosco
2011
Chinese yards beset with execution issues, significant delays and huge cost overruns While Chinese yards have attempted to gain market share in the offshore rig industry, there have been numerous instances of delays and cost overruns. Typically, delays at Chinese yards have been attributable to Equipment-related delays Design changes or operational issues due to faulty understanding of design Financing availability Shortage of skilled labour or insufficient expertise in engineering and construction management Instances of project delays at Chinese yards Island Innovator, delivered in September 2012 by Cosco Corp to Marine Accurate Well, was initially scheduled for delivery in October 2010 and was delayed by almost 2 years. Marine Accurate Wells 2009 annual report cites under-estimation of work scope by the yard, project financing issues and engineering-related issues as the cause for the delay.
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November 23, 2012
In 2009, BP cancelled a contract with COSL Pioneer for drilling of production wells at the Skarv field due to delays at the CIMC Raffles yard. While COSL Pioneer was eventually delivered with a delay of over 30 months (two and a half years), COSL Innovator and COSL Promoter were also delayed by over 2 years. According to its interim report 2009, COSL recognised an impairment charge of CNY819.9mn due to delay in delivery of three semi-submersible rigs under construction. Execution: Proprietary design and more of same rig type is good Over the years, Singapore-based offshore yards have specialised in a few design types that are more in demand. Same design based orders implies better execution, less delays or cost overruns and greater in house understanding of rig complexity. As they have built more rigs of the same design/class, operational understanding has improved and execution issues have been minimised. An analysis of rig data since 2004 (Source: ODS-Petrodata) reveals that Keppel has secured orders for 31 rigs based on its proprietary KFELS B class design while SMMs PPL shipyard has secured 20 JU orders of its proprietary Pacific Class 375 design. Through the cycle, both groups have built up their research & development of the rig designs and now offer more enhanced models. Similarly, while Jurong shipyard has secured 10 orders for Friede & Goldman ExD class semi-sub, KFELS yard has secured 7 semi-sub orders of Ensco 8500 design.
Fig. 24: Design for JUs ordered since 2004

70 60 50 40 30 20 10 0 number of rigs 60
Fig. 25: JU orders by design at yards (2004-08)
Yantai CIMC Raffles PPL Shipyard
32 24 22 20 13 8 8 7 6 6 Lamprell 12
20
Keppel FELS 4
31
Keppel AmFELS
Jurong 0
4 5 10 15 20 25 30 35
LeTourneau Super 116E Class Friede & Goldman JU-2000E
KFELS B Class Baker Marine Pacific Class 375
Friede & Goldman Super M2
Fig. 26: Design for semi-subs ordered since 2004

25 number of rigs 20 15 11 10 5 0
Global Maritime GM 4000 GVA 4000 NCS Moss Maritime CS-50 MkII (N) Sevan Drilling Sevan 650 Friede & Goldman ExD Ensco 8500 KFELS/MSC DSS 38E KFELS/MSC DSS 21 GVA 7500-N Others
Fig. 27: Semi-sub orders by designs at yards (2004-08)
21
Samsung Heavy
Keppel FELS
3 7
Jurong 7 7 6 5 5 4 4
10 4 7
Daewoo
COSCO Nantong 6
BRASFELS 0 Sevan Drilling Sevan 650 KFELS/MSC DSS 21 Friede & Goldman ExD 2 4 GVA 7500-N Ensco 8500 6
10 KFELS/MSC DSS 38E GVA 4000 NCS
12
Moss Maritime CS-50 MkII (N)
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November 23, 2012
Repeat orders driven by strong relationships with drillers Repeat orders for same rig design are in turn driven by strong relationships that yards develop overtime with offshore drillers. Drillers often prefer one rig type over another and request customised capabilities that suit the niche they are operating in. We believe Singapore yards have, over time taken advantage of this and secured multiple orders from same customers. Offshore yards tend to leverage strong relationships with drillers in 2 ways: By cross-selling other products/vessel types that the drillers might be interested in Operational efficiencies resulting from repeat orders for same rig type can be passed on to other customers Leveraging its relationship with Ensco to which it had delivered 6 JUs, Keppel secured its first order in 8500 semi-sub series from the company in 2005. Keppel secured its first order in 8500 semi-sub series from the company. The 8500 series was Enscos proprietary design. Building on the first order, subsequently Keppel secured an additional 6 semi-sub orders from Ensco between 2006 and 2008.
Fig. 28: JU orders (since 2004) from key customers

1
Fig. 29: Semi-sub orders (since 2004) from key customers
Transocean Vantage Drilling Standard Drilling Seadrill Noble Maersk Drilling Gulf Drilling International Ensco Egyptian Drilling COSL Aban Offshore 0 PPL Shipyard 1
3 4 4 2 3 6 6 2 7 4 6 4 3 4 4 2 3 Keppel FELS 4 5 5 6 Jurong Shipyard 7 8 number of rigs
Seadrill Queiroz Galvao Noble Maersk Drilling Ensco Diamond Offshore Atwood 0 1 2 2
6 number of rigs
2 3 7
2 2 3 4 5 Jurong Shipyard 6 7 8
Keppel FELS
Chinese yards access to cheap labour only a limited advantage We consider much of Chinas rise in manufacturing is often attributed to its access to a vast pool of low-cost labour. Chinese yards access to low-cost labour, however, is only a limited advantage in the market for offshore rigs as we regard equipment costs and not labour as the dominant cost item. Labour costs in contrast are limited to about 20% of the costs of JU and semi-subs, based on our estimates.
Fig. 30: Rig cost breakdown
Cost component Steel Labor Drilling equipment Other equipment Profits Total
Source: Offshore mag.com, Various media reports, Nomura research
Floater % 10 15-20 20-30 20-30 10 100
Jack-up % 10-20 10-30 10-30 20-30 10 100
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November 23, 2012
Singapore yards position not impregnable

Despite Singapore yards significantly better execution track record, in our view, we believe Chinese yards can catch up overtime and pose a real threat. Our belief in Singapore yards position not being unassailable is based on their superior execution which is more a function of management expertise than technology. Drilling equipment for all offshore rigs is outsourced from mostly US-based suppliers and none of the Asian yards, whether Korean, Chinese or Singaporean, specialises in the drilling equipment technology, which in our view is key to all offshore rigs. Singapore yards competitive advantage then lies in superior management expertise, deeper understanding of rig complexity and better handling of operational issues, in our view.
Rise of Brazil
Encouraged by Petrobras backing, Brazils offshore rig building industry is looking to increase their share of the market for offshore rigs. Taking advantage of Petrobras requirements for high local content, Brazil-based rig builders have secured orders for 16 drillships, besides FPSOs and offshore vessels (Source: ODS Petrodata). However, given their lack of experience, and limited technical knowhow, execution issues are likely to dominate and industry participants believe at least some of the orders might be cancelled and awarded to Singapore-/Korea-based yards.
Fig. 31: Share of semi-sub and drillship new orders by year

Brazil's share of semi-sub and drillship new orders has increased significantly due to Petrobras backing
Semi-subs
Build Country Brazil China Singapore South Korea Total Market share Brazil China Singapore South Korea 2008 1 8 1 10 2008 0% 10% 80% 10% 2009 2011 1 3 3 7 2011 14% 43% 0% 43% 2012 5 1 1 4 11 2012 45% 9% 9% 36%
Drillships
Build Country Brazil China South Korea Total 2008 1 15 16 2009 2010 1 5 6 2011 7 2 26 35 2012 10 16 26
1 1 2009 0% 0% 0% 100%
2 2
Market share Brazil China South Korea
2008
2009
2010
2011
2012
0% 6% 94%
0% 0% 100%
0% 17% 83%
20% 6% 74%
38% 0% 62%
Increasing share of new orders With the backing of Petrobras, Brazil-based shipyards have secured several new orders. Petrobras orders for 22 drillships and 6 semi-subs will be delivered through to 2020 with bulk of the deliveries slated for 2016-19. While the order for 6 semi-subs and 6 drillships were awarded to BrasFELS and Estaleiro Jurong Aracruz, Brazilian yards of Keppel and SMM, the remaining 16 drillships will be built by Brazil based yards Ecovix-Engevix, Estaleiro Atlantico Sul and Estaleiro Enseada do Paraguaca (Source: ODS Petrodata).
Fig. 32: Brazil: delivery schedule

Delivery year 2015 2016 2017 2018 2019 2020 Grand Total
Fig. 33: Brazilin yards and floater orders

DS 1 4 6 4 6 1 22 SS 1 1 1 2 1 6
Build Yard BRASFELS Ecovix-Engevix Estaleiro Atlantico Sul Estaleiro Enseada do Paraguacu Estaleiro Jurong Aracruz
DS 3 7 6 6
SS 6
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November 23, 2012
Nevertheless, Brazils rig building industry is still evolving with Brazil-based yards having limited prior experience of building rigs. Petrobras 28 drillships and semi-subs, to be built in Brazil, are in fact the first ever semi-subs and drillships being built there. Higher newbuild costs in Brazil Based on recent new orders, drillship and semi-sub newbuild costs in Brazil are substantially higher vs other build locations. Based on 2012 new orders, we calculate the average drillship build cost in Brazil at USD793mn is 17% higher than global average of USD676mn. Similarly, a new semi-sub in Brazil costs USD820mn vs global average of USD734mn. We attribute the higher newbuild costs in Brazil to a number of factors: Execution issues at Brazilian yards given little prior experience of rig building Lack of trained workforce Rising labour costs contributing to higher overall newbuild costs Lack of established oil supply chain
Fig. 34: Drillship newbuild costs: Global vs Brazil orders

850 USD mn 800 750 700 650 600
Fig. 35: Semi-sub newbuild costs: Global vs Brazil orders

850 USD mn 800 750 700 650 600 550 500
550 500 2005 2006 2007 Global 2008 2009 2010 Brazil 2011 2012
450 400 2005 2006 2007 Global 2008 2009 2010 Brazil 2011 2012
Track record of Brazilian yards: example of Estaleiro Atlantico Sul In February 2011, Estaleiro Atlantico Sul (EAS) secured award of 7 drillships from Petrobras, which will be delivered between 2016 and 19 and cost USD662mn each. Though EAS has not built any drillships before, its track record on other projects of noticeably lesser complexity has been far from satisfactory, in our view. While the Joao Candido oil tanker was delayed by over 2 years (and cost overruns of ~ USD200mn according to media reports), the P-55 hull project too was delayed by over a year. In May 2012, Petrobras transportation arm, Transpetro suspended its contract to buy 16 vessels from EAS after the delivery of the first tanker was delayed by 2 years. EAS difficulty in successfully completing the contract for oil tankers, which are significantly simpler to build than drillships with advanced capabilities, raises questions about its ability to build the drillships. It is also noteworthy that EAS orders at USD662mn are priced at a significant discount to SMMs order for 6 drillships at USD806mn.
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November 23, 2012
Industry News and Events

Pacific Carriers acquire 67% stake in Drydocks World Following completion of a restructuring from which DDW Sea has emerged as a debt free company, Pacific Carriers has acquired a 67% shareholding in Drydocks WorldSouth East Asia Pte Ltd. (DDW SEA) DDW SEA will be subsequently re-named as DDW-PaxOcean with Pacific Carriers overtaking management in the new firm. DDW-PaxOcean will comprise a shipyard in Singapore and three yards in Batam with a shipping division managed by the new management team. Source: Marinelog.com SapuraKencana to bid for Brazil PLSVs, Petrobras to relaxe local content rules th According to an article dated 5 November 2012 on Upstream Online, SapuraKencana Petroleum (SAKP) along with JV partner Seadrill is considering submitting bids for 5 flexible pipelay vessels under a tender issued by Petrobras. The joint bid will follow SAKPs win of three such vessels in 2011 out of a total of six PLSV contracts worth USD2.9bn awarded by Petrobras. Petrobras has issued a tender for nine PLSVs and has relaxed local content requirements for the vessels to be built in Brazil following overstretched capacity at domestic yards and after a lukewarm response from contractors in last years tender. Source: Upstream Online Noble Corp: Upbeat on deepwater, believe market has not peaked yet Deepwater fundamentals remain solid underpinned by stable crude prices (averaging USD110/bbl of late), expansion of exploratory drilling into frontier areas and building backlog of field development programs For the 9 months ended 2012, 38 discoveries were announced in water depth of 4,000 ft or greater, higher than 37 discoveries in 2010. The number of countries that announced discoveries (in water depth >= 4,000 ft) also expanded from 5 in 2008 to 12 for the 9 months ended 2012
nd According to a Bloomberg article dated 22 October, 2012, Noble management commented that ultra-deepwater dayrates for several recent fixtures have reached USD575,000/day though the market has probably not peaked yet.
Dayrates for JUs have been inching higher while contract lengths have been increasing as surplus jack-ups decline and demand strengthens For Nobles floater fleet, 81% and 70% of capacity is already committed for 2013 and 2014 respectively. For JU fleet, 70% and 38% of capacity is already committed for 2013 and 2014 respectively Noble currently has 5 ultra-water drillships and 6 high spec JUs under construction while a program for divestiture of standard jack-ups is under review. 3 of these drillships (delivery 2013) and 2 JUs (delivery 2013) have already secured contracts from clients. In line with its strategy of increasing its footprint in the ultra-deepwater segment, by 2015, Noble expects the ultra-deepwater share of revenue to increase to 40%, from 24% currently. Contribution from high-spec JUs is also expected to increase from 6% currently to 11% by 2015 while the share of standard JUs is expected to decline from 33% to 23% over the same period. Total contract backlog increased to USD14.8bn at the end of September 2012, up from USD13.7bn at end of 2011 Source: Company Data, Bloomberg ONGC to spend USD210bn by 2030 to boost output, triple profits th According to an article dated 4 October 2012 on Bloomberg, in a bid to secure resources, increase hydrocarbon production and triple profits, ONGC plans to spend USD210bn through to 2030. Key expansion plans include aggressive forays into offshore exploration and buying shale gas and oil sand acreage overseas. ONGCs Chairman Sudhir Vasudeva commented in February that the company planned to spend INR1.25trn (~ USD24bn) over the next 5 years for increasing production.
18
November 23, 2012
Appendix: Taking Stock

Fig. 36: Jackup orders since 2011
Order date Jan 11 Customer Rig type Shipyard Keppel FELS Price (US$) US$180mn x 2, 2 options US$208mn x 2, 2 options US$ 182mn US$220mn x 2, 2 options US$500mn x 2, Delivery date 1Q 2013, 2Q 2013 2Q 2013 2Q 2013, 3Q 2013 Jun-13 2Q 2013, 4Q 2013 4Q 2013, 2Q 2014 2H 2012 onwards 1Q 2013 1Q 2013 3Q 2013 3Q 2013, 1Q -2 of the 4 options granted in Dec 2010 2014 1H 2013 Option from Dec exercised 3Q 2013, 3Q 2014 2H 2013 to -Related to options granted earlier to Standard Drilling 1H 2014 and Clearwater Capital Partners (which merged with Standard Drilling) -US$193mn/unit: 7% premium over the earlier price May 11 May 11 Dynamic KFELS B class Offshore Group KS Energy LeTourneau Keppel FELS Cosco US$180mn 1 Option US$356mn for 2 1Q 2013 3Q 2013, 1Q 2014 3Q2013 -Price lower than other similar contracts Remarks
Clearwater KFELS B class Capital Partners Discovery Offshore Atwood Oceanics Ensco KFELS A class (400ft) Pacific Class 400 KFELS A class (400ft)
Jan 11 Jan 11 Feb 11
Keppel FELS PPL Shipyard Keppel FELS
- 20-80 payment terms - 2 options worth US$213mn and US$215mn
- 20-80 payment terms - 2 options at similar terms - 13% premium to similar order at Jurong Shipyard placed in May 2007 - 5.5% premium month-on-month -Enhanced design; flat ASP vs. similar orders in 2H07
Feb 11
Maersk Drilling
Gusto MSC CJ70
Keppel FELS
Feb 11 Mar 11 Mar 11 Mar 11 Mar 11 Apr 11 May 11 May 11
Transocean
KFELS B class
Perforadora Central Japan Drilling KFELS Super B Class Company jackup rig Seadrill Gusto MSC CJ70 Noble Corp Jasper Investments Gulf Drilling International Standard Drilling Friede & Goldman JU3000N KFELS B class
1 option US$190mn x 2, 3 options LeTourneau Super 116E Keppel AmFELS LLC US$195mn Keppel FELS Keppel FELS Jurong Shipyard (SMM) Jurong Shipyard (SMM) Keppel FELS Keppel FELS Keppel FELS US$210mn US$450mn US$427.6mn for 2 US$180mn US$393mn for 2 US$772mn for 4
KFELS B class Bigfoot KFELS B class
Jul 11
Mermaid Maritime Offshore Drilling)
KFELS B class (Asia
Keppel FELS
US$184m
1 of the 2 options granted in Oct '10
Aug 11 Aug 11 Oct 11 Oct 11
Noble Corp Transocean Ensco
Friede
&
Goldman Jurong Shipyard Keppel FELS Keppel FELS
KFELS B class KFELS A class (400ft)
US$444mn for 2 2 options US$195mn US$245mn US$166.5mn each for 2 JU na na
National Drilling LeTourneau Super 116E Lamprell Company (Enhanced) Jindal Pipes LeTourneau Super 116E (Enhanced) Greatship LeTourneau Super 116E (Enhanced) Safin Pacific Class 400 Perforadora LeTourneau Super 116E Central (Enhanced) National Drilling LeTourneau Super 116E Company (Enhanced) Lamprell Lamprell
3Q 2014, 4Q -2 of the 4 options granted in Dec 2010 -secured 2 more options 3Q 2013 Exercised an option taken in Feb 2011 3Q 2014 Exercised an option taken in Jan 2011. Also let another option in Jan 2011 expire 1Q14, Exercised options for 2 rigs 2Q14 na na Nov 12 1Q14 4Q14, 1Q15 1Q13 End 2014 41821 1Q15 1Q15 1Q15 Option for additional unit at USD 210mn Option for additional unit
Nov 11 Feb 12 Feb 12 Mar 12 Apr 12
PPL Shipyard US$213mn Keppel AmFELS LLC US$205mn Lamprell US$166.5mn each for 2 JU US$ 218.5mn US$227mn USD 208mn USD 560mn USD 242mn USD 170mn
Apr 12 May 12 May 12 June 12 Jul 12 Aug 12
Gulf Drilling Unknown Perisai Petroleum Maersk Teniz Burgylau Talland Navigation
Pacific Class 400 PPL LeTourneau Super 116E Lamprell (Enhanced) Pacific Class 400 SMM Gusto MSC CJ70 HE KFELS B Class LeTournaeu Super 116E design Keppel Keppel Cosco
Source: Company data, Nomura research
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November 23, 2012
Fig. 37: Floater orders since 2011

Order date Jan 11 Feb 11 Jan 11 Jan 11 Feb 11 Mar 11 Mar 11 Apr 11 Apr 11 Apr 11 Apr 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Oct 11 Nov 11 Dec 11 Dec 11 Dec 11 Jan 12 Feb 12 Feb 12 Mar 12 Mar 12 Mar 12 Apr 12 Apr 12 Apr 12 Apr 12 May 12 May 12 May 12 May 12 May 12 Jun 12 Aug 12 Aug 12 Sep 12 Sep 12 Sep 12 Sep 12 Oct 12 Nov 12 Noble Aker Drilling Atwood Oceanics Pacific Drilling Noble Maersk DryShips Fred Olsen Energy Seadrill Rowan Songa Offshore for Statoil Noble Opus Offshore Chevron Atwood Oceanics Rowan COSL Drilling Prosafe Sete Brasil European Owner Seadrill Sete Brasil Floatel Helix Songa Ensco Drillship (12,000ft) Drillship Drillship Drillship Drillship Drillship Drillship Drillship Drillship Drillship Semisub Drillship Drillship Gas Production platform Drillship Drillship Semisub accomodation semisub Semisub Semisub Drillship Semisub Semisub Semisub well intervention rig Semi-sub Drillship Hyundai Heavy Daewoo Daewoo Samsung Heavy Hyundai Heavy Samsung Heavy Samsung Heavy Hyundai Heavy Samsung Heavy Hyundai Heavy Daewoo Hyundai Heavy Shanghai Shipyard (CSSC) Daewoo Daewoo Hyundai Heavy CIMC Raffles Jurong Shipyard Keppel FELS Daewoo Samsung Estaleiro Jurong Aracruz Keppel FELS Jurong Shipyard Daewoo Samsung Jurong Estaleiro BrasFELS Samsung Hyundai Hyundai Cosco Hyundai Samsung Samsung SMM Keppel Hyundai Samsung Daewoo Daewoo Samsung SMM US$291.6mn US$809mn US$620mn US$600mn US$792.5mn US$315mn US$385.5mn US$ 570mn for 2 US$645mn US$568mn US$ 4120mn US$600mn US$650mn US$650mn US$200mn US$655mn US$600mn US$645mn US$4.03bn US$315 US$620mn US$600mn US$750mn each US$635mn US$608mn each US$295.2mn Customer Diamond Offshore Rig type Drillship (12,000ft) Shipyard Hyundai Heavy Price (US$) US$590mn US$590mn US$605mn x 2, 2 options US$600mn x 2, 2 options US$600mn US$1.11 bn for 2 US$615mn x 1 US$1.13 bn for 2, 2 options US$607.6 mn US$613, 1 option US$600 mn US$1.12bn for 2, 2 options US$565mn each US$630mn x 1 Not revealed 1.61 trillion won 638.6 billion won US$600mn Delivery date 2Q 2013 4Q 2013 2Q 2013, 4Q 2013 4Q 2013 EOY 2013 2Q 2013, 3Q 2013 2Q2014 3Q 2013, 4Q 2013 Jul 13 Aug 13 3Q 2013 2H 2013 mid-2014 1Q 2014, 3Q 2014 2H2014 1Q 2014 Dec 2014 Dec 2014 Dec 2014 3Q 2014 2Q 2014 4Q 2015 1H2014 3Q14, 4Q14 2Q15 July 2014 Jan 2015 1Q14 2Q15 3Q14 Jan 2015 na 2Q14 4Q14 3Q14 end 2015 4Q14 2Q14 4Q14 2Q15-2Q19 Early 2015 1Q15 4Q14 2015-2017 Mar 31, 2015 One option remaining Jan 2015 Dec, 2014 Total three options outstanding at time of award of this contract Option for 1 more DS with delivery 1Q15 5 drillships Option for 1 semi-sub expiring Aug 12 Signed LOI with Sete Brasil for 5 units Option for 1 additional drillship Option for 1 semi-sub expiring Aug 12 Options for 2 additional drillships North Atlantic Drilling Semisub Sete Brasil Seadrill Seadrill Fred Olsen Cotemar Diamond Offshore Pacific Drilling Ensco Sete Brasil Floatel Rowan Seadrill Transocean Atwood Oceanics Ocean Rig Prosafe Semisub Drillship Semisub Semisub Accomodation Semi Drillship Drillship Drillship Drillship Accomodtion semi Drillship Drillship Drillship Drillship Drillship Accomodation Semi Option to order addiiotnal drillship for delivery in 2014 2 options granted Exercised option from June order. Acquire 1 option expiring in Feb-12 1 option which was exercised in Nov 11 Second option exercised. LOI from Shell to contract one unit LOI signed; 25% payment on signing by Feb 11, 75% on delivery Remarks
Exercised options from Jan 11 order
Exercised first of the four options
Exercised options from Jan 11 order Also hold two options
Source: Company data, Nomura research
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November 23, 2012
Fig. 38: Offshore order expectations

Est. Cost (US$ mn) 650 550 550 550 650 650 650 550 650 650 650 550 300 550 650 140 650 180 650 # of vessels 1 3 1 1 1 1 1 1 2 1 1 1 1 1 1 1 2 5 1 Order potential (US$ mn) 650 1650 550 550 650 650 650 550 1300 650 650 550 300 550 650 140 2500 1300 900 650 875 550 1300 650 1950 1020 1100 900 550 2200 650 16200 550 1300
Customer\Project
Rig type
Agora Oil & gas (Greater Catcher, UK Offshore) FPSO Various companies (Angola) SS Chevron (off UK and Eastern Canada) SS CNOOC (Congo-Brazzaville) DS\SS CNOOC (Enping, South China Sea) FPSO CNOOC (Liuhua 16-2, South China Sea) FPSO SS HESS (Equus project, offshore Western Australia) CNPC - Equitorial Guinea SS Total (Kaombo project - Angola) FPSO Maersk (Chissonga - Angola) FPSO Chevron (Lucapa - Angola) FPSO ENI (Togo) SS Floating production semi ExxonMobil (Hadrian North) HRT Oil & Gas (Namibia) SS Husky Energy (Madura) FPSO KCA Deutag Semi-tender Maersk JU\SS ONGC (Cluster 7 & GS 29) FPSO Pemex JU Pemex (Ayatsil oil development) FPSO Fabrication of topside modules for FPSO Petrobras Petrobras (Namibia) SS Petrobras (Santos basin) FPSO Petronas (Bukit Tua, Indonesia) FPSO Petronas (Vietnam) FPSO Saudi Aramco JU Socar - Azerbaijan SS Statoil (category J rigs) High Spec JU Total - Congo-Brazzaville DS\SS Total, Shell, ExxonMobil, Sinopec - Nigeria SS Tullow (Ten Project\West Cape) FPSO FPSO\FSO Various customers\projects* Vietsovpetro SS Woodside (Laverda & Lady Nora development) FPSO
550 650 650 650 170 550 450 550 550 650 600 550 650
1 2 1 3 6 2 2 1 4 1 27 1 2
Total order potential

Source: Upstream Online, Rigzone, company data * According to IMA, 54 projects are in final design stage and might need a floating prod system in 12-18 months Assuming 50% of these require new units\conversion
45,835
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November 23, 2012
Fig. 39: Breakeven costs, budget breakeven and commercially attractive prices for current oil production, mid-2011
Notes: Only OPEC countries, Russia and the aggregation of the five super-majors (BP, Chevron, ExxonMobil, Shell and Total) are included. The breakeven cost is the realised oil price at which all operating expenses (excluding taxes) and capital costs (including a 10% capital discount rate), are fully recovered
Source: World Energy Outlook, 2011
Fig. 40: Saudi spare capacity vs. crude price

mmb/d 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
Saudi spare capacity Spare capacity ex Saudi Crude price (RHS)
Fig. 41: Global spare capacity vs. crude price

160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0
Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Spare capacity (% of demand) 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0%
Crude price (RHS) 160.0 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0
0.0
Source: IEA
Source: IEA
22
November 23, 2012
Fig. 42: IEA demand-supply

2008 OECD DEMAND North America Europe Pacific Total OECD NON-OECD DEMAND FSU Europe China Other Asia Latin America Middle East Africa Total Non-OECD Total Demand OECD SUPPLY North America Europe Pacific Total OECD NON-OECD SUPPLY FSU Europe China Other Asia Latin America Middle East Africa Total Non-OECD Processing Gains Global Biofuels Total Non-OPEC OPEC Crude NGLs Total OPEC Total Supply Total Stock Ch. & Misc Call on OPEC crude
Source: IEA
2009 23.7 14.7 8.0 46.3 4.0 0.7 7.9 10.3 5.7 7.1 3.4 39.1 85.4 13.6 4.5 0.6 18.8 13.3 0.1 3.8 3.6 3.9 1.7 2.6 29.0 2.0 1.6 51.4 29.1 4.9 34.0 85.4 29.1
2010 24.1 14.7 8.1 46.9 4.2 0.7 8.8 10.9 6.0 7.3 3.3 41.1 88.1 14.1 4.1 0.7 18.9 13.5 0.1 4.1 3.7 4.1 1.7 2.6 29.8 2.1 1.8 52.6 29.2 5.4 34.6 87.3 (0.8) 30.0
2011 1Q12 24.1 14.4 8.1 46.6 4.4 0.7 9.2 11.0 6.3 7.4 3.3 42.4 88.9 14.6 3.8 0.6 18.9 13.6 0.1 4.1 3.6 4.2 1.6 2.6 29.9 2.1 1.9 52.8 29.9 5.8 35.7 88.4 (0.5) 30.4 23.5 13.8 9.1 46.4 4.4 0.7 9.6 11.3 6.3 7.1 3.4 42.8 89.2 15.6 3.8 0.5 19.9 13.7 0.1 4.2 3.6 4.3 1.4 2.4 29.8 2.1 1.6 53.4 31.4 6.0 37.4 90.8 1.6 29.8
2Q12 23.8 13.8 8.0 45.6 4.5 0.7 9.3 11.4 6.4 7.7 3.4 43.4 89.0 15.5 3.6 0.5 19.6 13.6 0.1 4.1 3.5 4.1 1.5 2.3 29.2 2.1 1.9 52.8 31.7 6.1 37.8 90.7 1.7 30.0
3Q12 23.9 14.0 8.3 46.2 4.7 0.7 9.4 11.1 6.7 8.0 3.4 43.9 90.1 15.5 3.1 0.6 19.3 13.6 0.1 4.2 3.5 4.1 1.5 2.3 29.3 2.2 2.1 52.9 31.5 6.3 37.8 90.7 0.6 30.9
4Q12 23.8 13.7 8.6 46.1 4.6 0.7 9.8 11.5 6.5 7.4 3.4 44.0 90.1 16.1 3.3 0.5 20.0 13.7 0.1 4.3 3.5 4.2 1.5 2.3 29.7 2.1 1.9 53.8
2012 1Q13 23.7 13.8 8.5 46.1 4.5 0.7 9.5 11.3 6.5 7.6 3.4 43.5 89.6 15.7 3.5 0.6 19.7 13.7 0.1 4.2 3.6 4.2 1.5 2.3 29.5 2.1 1.9 53.2 23.6 13.4 9.1 46.1 4.6 0.7 9.8 11.6 6.4 7.3 3.5 43.8 89.9 16.3 3.4 0.5 20.2 13.7 0.1 4.3 3.5 4.3 1.5 2.4 29.7 2.2 1.6 53.7
2Q13 23.6 13.4 7.8 44.8 4.6 0.7 9.7 11.6 6.6 7.8 3.5 44.6 89.4 16.3 3.2 0.5 20.1 13.6 0.1 4.2 3.5 4.3 1.5 2.4 29.7 2.2 2.0 53.9
3Q13 24.0 14.0 8.0 46.0 4.8 0.7 9.6 11.3 6.8 8.2 3.5 45.0 91.0 16.4 3.1 0.5 20.1 13.3 0.1 4.2 3.4 4.4 1.5 2.4 29.4 2.2 2.4 54.1
4Q13 24.0 13.8 8.4 46.1 4.9 0.7 10.0 11.7 6.7 7.7 3.5 45.2 91.3 16.8 3.3 0.5 20.6 13.6 0.1 4.2 3.4 4.5 1.5 2.5 29.8 2.2 2.1 54.7
2013 23.8 13.6 8.3 45.8 4.7 0.7 9.8 11.6 6.6 7.8 3.5 44.7 90.4 16.5 3.3 0.5 20.2 13.6 0.1 4.2 3.5 4.4 1.5 2.4 29.6 2.2 2.0 54.1
2014 23.8 13.7 8.2 45.8 4.9 0.7 10.1 11.8 6.7 8.1 3.6 46.1 91.8 16.7 3.3 0.6 20.6 13.6 0.1 4.3 3.4 4.4 1.4 2.5 29.8 2.2 2.2 54.8
24.5 15.5 8.3 48.4 4.2 0.7 7.7 9.9 5.6 6.7 3.3 38.1 86.5 13.3 4.8 0.6 18.7 12.8 0.1 3.8 3.7 3.7 1.7 2.6 28.4 2.0 1.4 50.6 31.6 4.5 36.1 86.7 0.3
6.3
6.2
6.3
6.4
6.6
6.6
6.5
6.6
30.0
30.2
29.8
29.1
30.4
30.1
29.8
30.4
Fig. 43: Jack-up fleet age profile (as on 19 Nov 2012)

Significant proportion of JU fleet in need of replacement
200 175 150 125 100 75 50 25 0 11 25 9 7 10 119 103 79 # of rigs 187
Fig. 44: Semi-sub fleet age profile (as on 19 Nov 2012)

Strong deepwater activity to propel semi-sub demand
75 66 51
50
46
25 10 0
1-5 yr 6-10 yr
23 13 6 0
18
Under Construction
Under Construction
6-10 yr
11-15 yr
16-20 yr
21-25 yr
26-30 yr
1-5 yr
30+yr
<1 yr
11-15 yr
16-20 yr
21-25 yr
26-30 yr
30+yr
<1 yr
23
November 23, 2012
Fig. 45: Drillship fleet age profile (as on 19 Nov 2012)

Ultra-deepwater markets have been the tightest
75 67
Fig. 46: KEP O&M current order book: Clients

Dynamic Offshore 1% Standard Drilling 6% Mermaid Maritime 1% Ensco 5% Maersk 12% Clearwater Capital 3% Hercules Offshore 3% Perforadora Central 3% Japan Drilling 2% Jasper Investments 1% Gulf Drilling 3% Transocean 2%
50 38
2% Misc contracts 3% Petrobras 7%
25
19
16 1 0
11-15 yr 16-20 yr
14 1
21-25 yr
Teniz Burgylau 2% Modec/Toyo Offshore Floatel 2% 2%
5
Under Construction 26-30 yr 30+yr
0
1-5 yr 6-10 yr <1 yr
Sete Brasil 39%
Source: Company reports, Nomura research
Fig. 47: SMM O&M current order book: Clients
Fig. 48: SMM new orders vs. Brent prices

7000 160 140 120 100 80 3000 2000 1000
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 May-05 May-06 May-07 May-08 May-09 May-10 May-11 Jan-12 May-12
Sete Brasil 44%
Safin 2% Helix 4% North Atlantic 5% Gulf Drilling 2% Perisai Petroleum Misc 2% 1% Modec-Toyo Offshore 2% Petrobras 6% Atwood Oceanics 5% Noble 12% Transocean 2% Seadrill 8%
6000 5000 4000
60 40 20
Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12
Prosafe 5%
SMM New Orders S$mn
Brent (US$/bbl) - right axis
Source: Company reports, Bloomberg, Nomura research
Fig. 49: KEP new orders vs. Brent prices (USD/bbl)

8000 7000 6000 5000 4000 3000 2000 1000 160 140
Fig. 50: Annual growth in global oil demand (% chg. Y-o-Y)

5% 4.2% 4%
Growth in global demand (%)
120 100 80 60 40 20
3% 2%
2.9% 2.4% 1.7% 1.1% 1.3% 0.8% 0.3% 1.5%
3.2%
1% 0% -1% -2%
1999 2000
1.0%
0.8%
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
May-05
May-06
May-07
May-08
May-09
May-10
May-11
Jan-12
May-12
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
-0.6% -1.4%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
KEP New Orders S$mn
Brent (US$/bbl) - right axis
Source: IEA
24
November 23, 2012
Fig. 51: JU market share (pre-2008 cycle)
Fig. 52: JU market share (2010 to date)
6% 17%
12%
12%
2% 5% 5% 6% 37%
12%
4% 4% 37%
23% Dalian Maritime Industrial Services Lamprell Keppel LeTourneau Others SMM Qingdao Beihai Dalian Keppel SMM
19%
Cosco
Yantai CIMC Raffles
Lamprell
Others
Fig. 53: Semi-submersible (Pre-2009 cycle)

5%
Fig. 54: Semi-submersible market share (2010 to date)
9% 4%
11%
11%
15%
11%
26%
24%
32% 25% 11%
COSCO
Daewoo
SMM
Keppel
Samsung Heavy Industries
Yantai CIMC Raffles
COSCO
Daewoo
SMM
Keppel
Yantai CIMC Raffles
Others
Source: Rigzone, Nomura research
Fig. 55: Drillship (Pre-2009 cycle)
Fig. 56: Drillship market share (2010 to date)

6% 6%
12%
5%
9%
34%
10%
24%
60%
19% Samsung Estaleiro Atlantico Sul

Samsung Daewoo Shanghai Shipyard Others
15% Hyundai Estaleiro Enseada do Paraguacu
Daewoo SMM
Others
25
November 23, 2012
Appendix: Valuations and market performance

Fig. 57: KEP/SMM vs. STI
(%) 20% 10% 0% -10% -20% -30% -40% -50%
Fig. 58: KEP/SMM quarterly new orders vs. Brent

(US$mn) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 SMM KEP Brent
STI
SMM
KEP
(US$/bbl) 160 140 120 100 80 60 40 20 0
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
Apr-11
Oct-11
Apr-12
Oct-12
Aug-11
Sep-11
Nov-11
Dec-11
Aug-12
Sep-12
Nov-12
Source: Bloomberg, Nomura research
Fig. 59: KEP stub (O&M) vs. SMM

45 40 35 30 25 20 15 10 5 (%)
May-12
May-12
Nov-12
Jan-12
Jun-12
Feb-12
Mar-12
Jul-12
Aug-12
Sep-12
Oct-12
Apr-12
Fig. 61: KEP 12-mth fwd P/E vs. pre-crisis level

(x)
25 20 15 10 5 0
12-mth fwd PE -1 stdev Pre-crisis mean +1 stdev
Fig. 62: KEP forward P/B

(x) 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 (%) 30 25 20 15 10 5 0
Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
P/B
Mean
-1stdev
+1stdev
ROE
Nov-12
Jul-12
Jan-12
Jun-12
Feb-12
Mar-12
Jul-12
Aug-12
Sep-12
Oct-12
Jan-12
Apr-12
Jan-11
Jun-11
Jan-12
Jun-12
Jul-11
Jul-12
May-11
May-12
Feb-11
Mar-11
Feb-12
Mar-12
Fig. 60: SCI stub (utilities)

(%)
KEP stub (O&M)
SMM
STI
80 70 60 50 40 30 20 10 0 -10 -20
SCI Stub (utilities)
STI
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
26
November 23, 2012
Fig. 63: SMM 12-mth fwd P/E vs. pre-crisis level

(x) 30 25 20 15 10 5 0
12-mth forward P/E - 1 stdev Pre-crisis mean +1 stdev
Fig. 64: SMM forward P/B

(x) 6 5 4 3 2 1 0 20 10 0 (%) 50 40 30
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
Fwd P/B
Mean
-1stdev
+1stdev
ROE (RHS)
Fig. 65: Cosco (Singapore) forward P/E

(x) 70 60 50 40 30 20 10
Fig. 66: Cosco (Singapore) forward P/B
(x) 16 14 12 10 8 6 4 2 0
Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Fwd P/B +1stdev
Mean ROE
-1stdev
Jul-12
(%) 45 40 35 30 25 20 15 10 5 0
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
P/E
-1 Std dev
Mean
+1 Std dev
Fig. 67: Yangzijiang forward P/E

(x) 60 50 40 30 20 10 0
Fig. 68: Yangzijiang forward P/B

(x) 9 8 7 6 5 4 3 2 1
P/B Mean -1stdev +1stdev ROE
(%) 45 40 35 30 25 20 15 10 5 0
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Oct-12
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
P\E
-1 Std dev
+1 Std dev
27
10 0 2 4 6 8 0 5
20
30
40
50
60
70
80
90
10
12
14
16
18
20
10
15
20
25
0
Mar-06 Jun-06 Sep-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Jun-06 Mar-06
Mar-06
Jun-06
Sep-06
(x)
(x)
(x)
Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
Dec-06
Mar-07
Jun-07
P/E (12M fwd)
P/E (12M fwd)
P/E (12M fwd)
Sep-07
Dec-07
Mar-08
Jun-08

Mean Mean
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12
Sep-08
Dec-08
Fig. 71: Hyundai Heavy forward P/E
Fig. 69: Samsung Heavy forward P/E
Fig. 73: Daewoo Shipbuilding forward P/E
Mean +1 stdev +1 stdev -1 stdev -1 stdev

Mar-12 Jun-12 Sep-12
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
+1 stdev 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
-1 stdev (x) (x) P/B (12M fwd)
Mar-12
Jun-12
Sep-12
Mar-06
Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08
Jun-06
Sep-06
(x)
Dec-06
Mar-07
Jun-07
P/B (12M fwd)
P/B (12M fwd)
Sep-07
Dec-07
Mar-08
Jun-08

Mean +1 stdev -1 stdev
Sep-08
Dec-08
Fig. 72: Hyundai Heavy forward P/B
Fig. 70: Samsung Heavy forward P/B
Fig. 74: Daewoo Shipbuilding forward P/B
Mean
Mean
Mar-09
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
+1 stdev
+1 stdev
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
-1 stdev
-1 stdev
Mar-12
Jun-12
Sep-12
November 23, 2012
28
November 23, 2012
Fig. 75: Regional valuation comparison

Market Closing Cap Price 21(US$ Nov mn) 15,066 6,983 8,841 10.3 4.8 3.5 P/E 11A 12F 13F 11A P/B 12F 13F 11A EV/EBITDA 12F 13F Dividend Yield (%) 11A 12F 13F
Name
Bloomberg Ticker
Nomura Rating
Conglomerates Keppel Corp KEP SP Equity Sembcorp Industries SCI SP Equity ST Engineering STE SP Equity Average Singapore shipyards Sembcorp Marine SMM SP Equity STX OSV SOH SP Equity Korea shipyards Daewoo Shipbuilding 042660 KS Equity Samsung Heavy 010140 KS Equity Hyundai Heavy 009540 KS Equity Hyundai Mipo 010620 KS Equity China shipyards Cosco Corp (Singapore) COS SP Equity Yangzijiang YZJ SP Equity Rongsheng 1101 HK Equity Japan shipyards Mitsubishi Heavy Industries* 7011 JP Equity Kawasaki Heavy Industries* 7012 JP Equity Sumitomo Heavy Industries* 6302 JP Equity Average OVERALL AVERAGE *YE in March, so 2011 corresponds with FY2012
BUY BUY BUY
12.4 10.6 20.5 14.5 11.8 4.6 5.8 8.7 5.9 10.4 14.2 4.3 3.5 47.9 13.1 10.8 11.2 11.8
10.0 12.9 18.9 13.9 17.4 6.6 8.6 9.6 11.1 11.8 18.6 5.0 23.8 20.8 9.7 10.0 12.8 13.0
13.1 12.8 17.7 14.5 17.2 7.2 6.9 7.9 9.0 10.1 24.8 6.9 28.2 15.1 8.4 9.2 12.6 12.9
2.0 2.1 6.1 3.4 3.6 2.1 0.9 1.6 0.7 0.6 1.5 1.3 0.5 0.9 1.0 0.8 1.3 1.7
1.7 1.9 5.7 3.1 3.4 2.2 0.8 1.4 0.7 0.6 1.5 1.1 0.6 0.9 0.9 0.7 1.2 1.6
1.7 1.7 5.1 2.8 3.1 1.9 0.7 1.2 0.6 0.6 1.4 1.0 0.5 0.9 0.9 0.7 1.1 1.4
8.6 5.0 13.9 9.2 7.8 2.9 5.6 4.1 3.5 3.9 5.5 4.7 9.2 8.3 6.3 3.3 5.7 6.3
7.4 5.7 12.8 8.6 10.9 5.8 6.2 4.6 5.2 5.4 6.8 4.9 21.7 7.9 6.5 3.7 7.9 8.1
10.0 5.7 11.9 9.2 11.0 6.0 5.3 3.9 5.0 4.7 8.0 6.7 20.4 6.9 5.9 3.5 7.9 8.1
4.2 3.6 4.4 4.1 5.9 7.5 2.4 1.5 3.4 1.3 3.4 5.1 6.5 1.7 2.7 2.9 3.3 3.5
4.5 3.1 4.4 4.0 4.2 15.6 2.4 1.3 1.8 1.5 3.4 5.1 1.3 1.7 3.3 2.9 3.3 3.4
4.5 3.1 4.7 4.1 4.2 7.4 2.4 1.6 0.9 1.6 2.3 5.1 1.3 1.7 3.8 2.9 2.8 3.0
BUY NEUTRAL NEUTRAL BUY NEUTRAL REDUCE REDUCE REDUCE NR BUY NEUTRAL NEUTRAL
7,242 1,339 3,802 7,254 14,011 1,941 1,618 2,721 1,364 14,319 3,710 2,549
4.3 1.4 21,500 34,000 199,500 105,000 0.9 0.9 1.5 350 183 342
Source: Bloomberg, Bloomberg consensus estimates for not rated stocks, Nomura estimates
29
November 23, 2012
Appendix: Leading indicators of newbuild orders

Fig. 76: Jack-up utilisation (worldwide)
100% 90%
150
Fig. 77: Jack-up day-rates GOM (300+ Cantilever)

(US$000) 200
80% 70% 60%
100 50
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11 Jan-11
Jan-11
Fig. 78: Semisub utilisation (worldwide)

100% 90% 80% 70% 60%
Fig. 79: Semisub day-rates GOM (7500 ft +)

(US$000) 700 600 500 400 300 200 100 0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Fig. 80: Drillship utilisation (worldwide)

100% 90% 80% 70% 60%
Fig. 81: Drillship day-rates GOM (DP & 7,500 ft +)

(US$000) 700 600 500 400 300 200 100 0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-12
Jan-12
Jan-12
30
November 23, 2012
Fig. 82: Under construction jack-ups contract status

18 16 14 12 10 8 6 4 2 # of units
Fig. 83: Under construction semisub contract status

2.5 2 1.5 1 0.5 0
4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014
# of units
4Q 2012
1Q 2013
2Q 2013
3Q 2013
4Q 2013
1Q 2014
2Q 2014
3Q 2014
Uncontracted
Contracted
4Q 2014
Uncontracted
Contracted
Fig. 84: Under construction drillships contract status

12 # of units 10 8 6 4 2
Fig. 85: Under construction floaters contract status

12 10 8 6 4 2
0
4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014
0 3Q 2012 4Q 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 4Q 2014
Uncontracted
Contracted
Uncontracted
Contracted
4Q 2014
31
Keppel Corp
CONGLOMERATES
KPLM.SI KEP SP
EQUITY RESEARCH
Still the winner despite bigger beauty parade
November 23, 2012 Rating Remains Target price Reduced from 13.80 Closing price November 21, 2012 Potential upside
Leading offshore rig builder with formidable front-line management, robust financials
Action: Reiterate BUY on good earnings visibility, robust orderbook and strong balance sheet. With a record SGD13.1bn net orderbook, globally recognised brand name facilities and track record, and a broadening Offshore & Marine (O&M) product base (eg. FLNG development) thanks to an innovative R&D team, we believe Keppel is well placed to weather the more turbulent and competitive environment in 2013/14. Keppel posted a 47% y-y rise in 9M12 net profit to SGD1.62bn, helped by strong property bookings. While 3Q12 net profit declined 16% y-y to SGD346.4mn, this was ahead of our estimate on stronger-than-expected O&M and property bookings. EBIT margins continue to come in within the guided range of 12-15%, with 3Q12 group EBIT at SGD432.6mn (-17% Y-y) and margins firm at 13.4%. Catalysts: Potential higher new orders secured, better margins. Stronger-than-expected new order wins spurred by stubbornly high oil prices and limited newbuild availability can be a key catalyst, in our view. Margins can surprise on the upside as Keppel moves on to book revenue from better priced jack-ups secured later in the 4Q10-2011 period. Valuation: Attractive relative to peers We have cut our target marginally to SGD13.20 (from SGD13.80 earlier) mainly due to roll over of our DCF model to 2013. Keppel now trades at FY13/14F P/E of 13.1x/12.4x vs historical P/E band of 8x and 22x with dividend yield of 4.6% and ROE averaging 16.5%, which is attractive relative to peers in our view.
Buy
SGD 13.20 SGD 10.27 +28.5%
Anchor themes We believe competition amongst international shipyards for offshore E&P contracts will intensify in 2013 as commercial shipbuilders grow even more lean and hungry. While the barriers to entry are high and the learning process has sunk many deep in red ink, we believe it will also impact margins at established offshore yards. Nomura vs consensus Our positive view on the sector is in line with market consensus view.
Research analysts Singapore Conglomerates Lisa Lee - NSL lisa.lee@nomura.com +65 6433 6979 Abhishek Nigam - NSFSPL abhishek.nigam@nomura.com +91 22 6723 5334
31 Dec Currency (SGD)
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
Revenue (mn) Reported net profit (mn) Normalised net profit (mn) FD normalised EPS FD norm. EPS growth (%) FD normalised P/E (x) EV/EBITDA (x) Price/book (x) Dividend yield (%) ROE (%) Net debt/equity (%)
10,082 1,841 1,491 83.02c 13.0 12.4 8.6 2.0 4.2 26.7 20.1
13,593 1,753 1,753 97.62c 17.6 N/A N/A N/A N/A 22.3 19.9
14,874 1,848 1,848 1.03 23.9 10.0 7.4 1.7 4.5 23.4 19.7
10,678 1,397 1,397 77.80c -20.3 N/A N/A N/A N/A 16.6 23.5
11,700 1,413 1,413 78.67c -23.5 13.1 10.0 1.7 4.5 16.5 23.3
10,631 1,445 1,445 80.46c 3.4 N/A N/A N/A N/A 16.6 24.1
11,922 1,486 1,486 82.73c 5.2 12.4 9.5 1.6 4.5 16.9 23.8
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart.
Nomura | Keppel Corp
November 23, 2012
Key data on Keppel Corp

Incomestatement(SGDmn)
Year-end 31 Dec Revenue Cost of goods sold Gross profit SG&A Employee share expense Operating profit EBITDA Depreciation Amortisation EBIT Net interest expense Associates & JCEs Other income Earnings before tax Income tax Net profit after tax Minority interests Other items Preferred dividends Normalised NPAT Extraordinary items Reported NPAT Dividends Transfer to reserves Valuation and ratio analysis Reported P/E (x) Normalised P/E (x) FD normalised P/E (x) FD normalised P/E at price target (x) Dividend yield (%) Price/cashflow (x) Price/book (x) EV/EBITDA (x) EV/EBIT (x) Gross margin (%) EBITDA margin (%) EBIT margin (%) Net margin (%) Effective tax rate (%) Dividend payout (%) Capex to sales (%) Capex to depreciation (x) ROE (%) ROA (pretax %) Growth (%) Revenue EBITDA EBIT Normalised EPS Normalised FDEPS Per share Reported EPS (SGD) Norm EPS (SGD) Fully diluted norm EPS (SGD) Book value per share (SGD) DPS (SGD)
Relative performance chart (one year)

FY10 9,140 -5,768 3,372 -1,816 1,556 1,741 -185 0 1,556 55 278 457 2,346 -560 1,786 -479 0 0 1,307 204 1,511 -680 831 FY11 10,082 -6,273 3,809 -1,912 1,897 2,093 -196 0 1,897 40 240 786 2,963 -641 2,323 -832 0 0 1,491 349 1,841 -766 1,075 FY12F 14,874 -9,222 5,652 -3,364 2,288 2,496 -208 0 2,288 52 245 0 2,585 -467 2,118 -270 0 0 1,848 0 1,848 -819 1,029 FY13F 11,700 -7,371 4,329 -2,718 1,611 1,831 -220 0 1,611 53 262 0 1,926 -315 1,611 -198 0 0 1,413 0 1,413 -819 594 FY14F 11,922 -7,312 4,610 -2,905 1,705 1,938 -233 0 1,705 55 269 0 2,028 -335 1,694 -208 0 0 1,486 1,486 -819 667
Source: ThomsonReuters, Nomura research

(%) Absolute (SGD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (SGD) 3-mth avg daily turnover (USDmn) Major shareholders (%) Temasek Holdings 1M -9.3 -4.9 14,935.1 68.4 11.67/8.88 35.60 3M 12M -9.0 21.5 -6.0 4.9
-9.0 -10.9 14.1
21.3
Source: Thomson Reuters, Nomura research
Notes
12.1 14.0 14.0 18.0 3.7 14.8 2.3 9.0 9.9 36.9 19.0 17.0 16.5 23.9 45.0 8.9 4.4 24.4 12.0
10.0 12.4 12.4 15.9 4.2 25.0 2.0 8.6 9.4 37.8 20.8 18.8 18.3 21.6 41.6 8.0 4.1 26.7 11.3
10.0 10.0 10.0 12.8 4.5 9.5 1.7 7.4 8.0 38.0 16.8 15.4 12.4 18.1 44.3 5.1 3.7 23.4 11.4
13.1 13.1 13.1 16.8 4.5 11.1 1.7 10.0 11.1 37.0 15.7 13.8 12.1 16.4 58.0 6.5 3.5 16.5 8.0
12.4 12.4 12.4 16.0 4.5 8.9 1.6 9.5 10.6 38.7 16.3 14.3 12.5 16.5 55.1 7.1 3.6 16.9 8.1
Relatively attractive dividend yield at 4% and average FY12-14F ROE at 18%, on our numbers
-25.4 3.7 3.4 3.5 3.5
10.3 20.2 21.9 13.0 13.0
47.5 19.2 20.6 23.9 23.9
-21.3 -26.6 -29.6 -23.5 -23.5
1.9 5.8 5.8 5.2 5.2
84.96c 73.49c 73.49c 4.52 0.38
1.02 83.02c 83.02c 5.20 0.43
1.03 1.03 1.03 5.94 0.46
78.67c 78.67c 78.67c 6.20 0.46
82.73c 82.73c 82.73c 6.37 0.46
33
November 23, 2012
Cashflow(SGDmn)
Year-end 31 Dec EBITDA Change in working capital Other operating cashflow Cashflow from operations Capital expenditure Free cashflow Reduction in investments Net acquisitions Reduction in other LT assets Addition in other LT liabilities Adjustments Cashflow after investing acts Cash dividends Equity issue Debt issue Convertible debt issue Others Cashflow from financial acts Net cashflow Beginning cash Ending cash Ending net debt
FY10 1,741 -689 185 1,238 -815 423 0 22 0 0 -107 337 -627 1,600 0 0 0 973 1,310 2,936 4,246 -178 FY11 2,093 -1,565 209 737 -802 -64 0 -606 0 0 169 -501 -724 0 0 0 0 -724 -1,225 4,246 3,021 1,857 FY12F 2,496 -779 234 1,951 -760 1,191 0 -300 0 0 -525 366 -819 0 0 0 0 -819 -453 3,020 2,567 2,082 FY13F 1,831 -397 221 1,655 -760 895 0 -300 0 0 1 596 -724 0 0 0 0 -724 -128 2,567 2,439 2,564 FY14F 1,938 -80 221 2,079 -850 1,229 0 -300 0 0 -327 602 -724 0 0 0 0 -724 -122 2,439 2,317 2,693 Notes
Strong free cashflow from robust offshore & marine orderbook
Balancesheet(SGDmn)
As at 31 Dec Cash & equivalents Marketable securities Accounts receivable Inventories Other current assets Total current assets LT investments Fixed assets Goodwill Other intangible assets Other LT assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Long-term debt Convertible debt Other LT liabilities Total liabilities Minority interest Preferred stock Common stock Retained earnings Proposed dividends Other equity and reserves Total shareholders' equity Total equity & liabilities Liquidity (x) Current ratio Interest cover Leverage Net debt/EBITDA (x) Net debt/equity (%) Activity (days) Days receivable Days inventory Days payable Cash cycle
FY10 4,246 537 1,959 3,940 305 10,987 3,507 2,243 0 0 3,723 20,461 393 4,343 719 5,455 3,676 0 410 9,541 2,866 0 906 5,509 1,638 8,054 20,461
FY11 3,020 577 2,028 6,219 404 12,249 4,921 2,716 0 0 4,598 24,483 808 5,323 621 6,752 4,069 0 607 11,428 3,801 0 1,016 6,374 1,864 9,254 24,483
FY12F 2,567 728 2,332 6,633 404 12,665 4,967 3,266 0 0 4,699 25,597 580 5,250 633 6,464 4,069 0 625 11,157 3,877 0 1,016 7,403 2,143 10,563 25,596
FY13F 2,439 765 2,598 6,651 404 12,857 5,020 3,816 0 0 4,704 26,395 608 5,070 700 6,379 4,394 0 644 11,416 3,954 0 1,016 7,651 2,358 11,025 26,395
FY14F 2,317 803 2,678 6,823 404 13,025 5,073 4,291 0 0 4,584 26,974 616 5,120 822 6,558 4,394 0 742 11,694 3,954 0 1,016 7,951 2,358 11,325 26,974
Notes
Strong balance sheet with relatively low gearing
2.01 na
1.81 na
1.96 na
2.02 na
1.99 na
net cash net cash
0.89 20.1
0.83 19.7
1.40 23.3
1.39 23.8
73.6 225.2 265.6 33.2
72.2 295.6 281.2 86.5
53.6 255.0 209.8 98.9
76.9 328.9 255.5 150.3
80.8 336.3 254.3 162.7
34
November 23, 2012
Valuations
Our new target price of SGD13.20 (previously SGD13.80) is based on a 5% discount to our sum-of-the-parts (SOTP) valuation (method unchanged) of SGD13.90. Keppel Lands (KPLD SP) valuation is based on Nomuras target price of SGD4.57 per share and M1s (M1 SP) valuation is based on Nomura's target price of SGD3.00 per share. Risks to our target price could be a larger-than-expected fall in margins from the groups O&M division; a significant and continued fall in orderbook build-up; a bigger- than expected decline in the asset values and rents at its property division; or a collapse in margins at its infrastructure division.
35
Sembcorp Industries
CONGLOMERATES
SCIL.SI SCI SP
EQUITY RESEARCH
Utility burns bright, marine to wax & wane
Utilities see steady contribution from project pipeline, marine likely uneven
Action: Broadening utilities earnings base underpins attractiveness As Sembcorp Industries ramps-up to achieve its Vision 2015 target (power/water capacity +80%/+43% in four years), we believe the group has built a credible pipeline of projects, positioning the utility division to achieve a 2011-14F CAGR of 10% (flat for marine). SCI posted a 19% drop in 3Q12 net profit to SGD181mn, on lower marine earnings from subsidiary Sembcorp Marine. Utilities continued to perform strongly, now accounting for 53% of group net profit, and helped offset marine earnings decline. Catalysts: We expect utilities earnings to remain firm next year, while marines solid orderbook should sustain SMM earnings We expect utilities earnings to remain firm in FY13-14F on the back of sustained growth at the groups expanding Singapore energy and integrated utilities operations, as well as increased contributions from the Middle East. SMMs orderbook of SGD12.5bn gives good earnings visibility for the marine division, in our view. Valuation: Reiterate Buy, utilities steady with beta optionality SCI trades at FY12-14F P/E of 12.9x, 12.8x and 11.4x, respectively, versus a historical P/E band of 7-19x. In our view, ROE of 16% and dividend yield at 3% remain attractive. We believe valuations remain undemanding: i) stub (utilities) P/E valuation of 8.1x vis--vis Asean pure play peers at 12-18x and ii) a defensible dividend yield of 3%.
Buy
SGD 6.00 SGD 4.79 +25.3%
Anchor themes SCI's integrated utilities units in Singapore provide a steady earnings base: an established client base secured by longterm contracts. Expansion in power and steam provides organic growth. Overseas investment (water, steam, power) in China and the UAE positions SCI for increased demand in growing markets. Nomura vs consensus Our FY12/13F earnings estimates and TP are marginally below market consensus estimates.
Research analysts Singapore Conglomerates Lisa Lee - NSL lisa.lee@nomura.com +65 6433 6979 Abhishek Nigam - NSFSPL abhishek.nigam@nomura.com +91 22 6723 5334
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
9,047 809 809 45.11c 6.4 10.6 5.0 2.1 3.6 21.2
10,628 668 668 37.24c -17.4 N/A N/A N/A N/A 16.2
10,628 668 668 37.24c -17.4 12.9 5.7 1.9 3.1 16.2
11,519 736 736 41.01c 10.1 N/A N/A N/A N/A 16.1
11,519 670 670 37.36c 0.3 12.8 5.7 1.7 3.1 14.7
12,753 773 773 43.07c 5.0 N/A N/A N/A N/A 15.3 5.9
12,753 755 755 42.08c 12.6 11.4 5.3 1.6 3.1 15.1 6.0
net cash net cash net cash net cash net cash
Nomura | Sembcorp Industries
November 23, 2012
Key data on Sembcorp Industries


FY10 8,764 -7,560 1,204 0 0 1,204 1,423 -219 0 1,204 -29 160 0 1,335 -194 1,141 -380 0 0 761 32 793 -305 488 FY11 9,047 -7,946 1,101 0 0 1,101 1,336 -235 0 1,101 -1 171 0 1,271 -125 1,146 -337 0 0 809 0 809 -305 504 FY12F 10,628 -9,634 994 0 0 994 1,260 -266 0 994 -69 175 0 1,100 -187 913 -245 0 0 668 0 668 -269 399 FY13F 11,519 -10,500 1,019 0 0 1,019 1,307 -288 0 1,019 -71 179 0 1,127 -192 935 -265 0 0 670 0 670 -269 401 FY14F 12,753 -11,573 1,180 0 0 1,180 1,499 -319 0 1,180 -75 184 0 1,289 -219 1,070 -315 0 0 755 0 755 -269 486

(%) Absolute (SGD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (SGD) 3-mth avg daily turnover (USDmn) Major shareholders (%) Temasek Holdings 1M 3M 12M
-11.3 -14.8 18.6 -11.5 -13.0 26.3 -7.2 6,978.3 50.8 5.79/3.88 12.23 -9.9 9.3
49.6
Notes
Valuations remain attractive in our view, given robust fundamentals
10.8 11.2 11.3 14.1 3.6 5.5 2.2 4.2 4.9 13.7 16.2 13.7 9.0 14.6 38.5 7.2 2.9 23.9 19.3
10.6 10.6 10.6 13.3 3.6 9.4 2.1 5.0 6.0 12.2 14.8 12.2 8.9 9.8 37.7 11.6 4.5 21.2 15.7
12.9 12.9 12.9 16.1 3.1 6.7 1.9 5.7 7.0 9.4 11.9 9.4 6.3 17.0 40.3 7.4 3.0 16.2 12.4
12.8 12.8 12.8 16.1 3.1 5.3 1.7 5.7 7.1 8.8 11.3 8.8 5.8 17.0 40.2 7.2 2.9 14.7 11.4
11.4 11.4 11.4 14.3 3.1 5.6 1.6 5.3 6.5 9.3 11.8 9.3 5.9 17.0 35.6 6.5 2.6 15.1 11.7
-10.5 7.0 6.5 9.1 9.1
3.2 -6.1 -8.5 6.4 6.4
17.5 -5.7 -9.7 -17.9 -17.4
8.4 3.8 2.5 0.3 0.3
10.7 14.7 15.8 12.6 12.6
44.41c 42.61c 42.41c 2.14 0.17
45.33c 45.33c 45.11c 2.30 0.17
37.21c 37.21c 37.24c 2.54 0.15
37.33c 37.33c 37.36c 2.79 0.15
42.04c 42.04c 42.08c 3.08 0.15
37
November 23, 2012
Cashflow(SGDmn)
FY10 1,423 287 -160 1,550 -629 921 0 -172 0 0 87 836 -268 0 0 0 322 54 890 2,598 3,488 -1,886 FY11 1,336 -249 -171 916 -1,052 -136 0 -138 0 0 85 -188 -304 0 0 0 0 -304 -492 3,488 2,996 -953 FY12F 1,260 189 -175 1,274 -789 485 0 -140 -83 -112 -224 -74 -226 0 0 0 0 -226 -300 2,995 2,696 -386 FY13F 1,307 485 -179 1,613 -828 785 0 -140 -76 -136 -254 179 -226 0 0 0 0 -226 -47 2,696 2,649 -73 FY14F 1,499 214 -184 1,529 -828 701 0 -180 -66 -121 -373 -39 -226 0 0 0 0 -226 -265 2,650 2,385 331 Notes
FCF positive despite high capex due to strong cash flows from Singapore utilities and marine
Balancesheet(SGDmn)
FY10 3,488 0 877 916 83 5,364 325 3,439 0 0 1,764 10,892 49 2,268 1,147 3,464 1,553 0 854 5,871 1,205 0 571 3,244 0 0 3,815 10,892
FY11 2,995 0 1,102 1,078 41 5,217 145 4,250 0 0 2,141 11,753 186 2,746 765 3,697 1,856 0 958 6,512 1,126 0 566 3,549 0 0 4,115 11,753
FY12F 2,696 0 1,147 1,089 42 4,974 395 5,038 0 0 2,335 12,742 233 2,992 765 3,989 2,078 0 958 7,025 1,160 0 566 3,991 0 0 4,557 12,742
FY13F 2,650 0 1,079 871 43 4,642 645 5,866 0 0 2,534 13,688 273 3,173 784 4,230 2,304 0 958 7,492 1,195 0 566 4,436 0 0 5,001 13,688
FY14F 2,385 0 1,077 880 43 4,386 795 6,695 0 0 2,738 14,614 312 3,091 1,088 4,492 2,403 0 958 7,853 1,231 0 566 4,965 0 0 5,530 14,614
Notes
Strong net cash balance sheet
1.55 42.0
1.41 1,001.0
1.25 14.5
1.10 14.3
0.98 15.8
net cash net cash
net cash net cash
net cash net cash
net cash net cash
0.22 6.0
38.7 56.3 113.8 -18.8
39.9 45.8 115.2 -29.4
38.7 41.2 109.0 -29.1
35.3 34.1 107.1 -37.8
30.9 27.6 98.8 -40.3
38
November 23, 2012
Valuation methodology and risks

Following the decrease in our EPS estimates, we cut our TP to SGD6.0 (from SGD 6.20 earlier). Our new target price of SGD6.0 is based on a 5% discount to our sum-of-theparts valuation, with the groups offshore and marine business based on our latest target price for Sembcorp Marine, while the groups utilities business is based on a discounted cash flow valuation (cash flows discounted back to 2013). Risks: A decline in marine or utilities margins (or increased competition or higher input costs).
39
ST Engineering
CAPITAL GOODS
STEG.SI STE SP
EQUITY RESEARCH
Steady and steadfast we stand
November 23, 2012 Rating Remains Target price Remains Closing price November 21, 2012 Potential upside
Record orderbook, diversified base to underpin earnings growth, dividend yield attractive
Action: Record orderbook of SGD12.5bn, broad-based industries and steady defence segment to underpin earnings, dividends. ST Electronics (STE) has outperformed its offshore & marine Singapore conglomerate peers on a 3- and 6-month basis despite slowing air travel that raises concerns of lacklustre MRO demand. STEs record orderbook across aerospace, land systems, marine and electronics will underpin earnings and dividends, in our view. We reaffirm our Buy rating and target price of SGD4.05. Catalysts: Strategic tie-ups, stronger-than-expected new orders In the medium term, STE should benefit from expansion/acquisitions that add strategic aerospace capacity/capability and also through new and expanded facilities in markets such as China and the US. Increased MRO outsourcing should help top ranked third-party player ST Aerospace secure additional fleet management contracts. While land and marine should benefit from upcoming defence and commercial governmentrelated projects, increasing focus on intelligent transport and info-security systems in Asia is a key positive for STE, in our view. Solid balance sheet, high returns on equity Balance sheet strength remains solid with cash of SGD2bn (as at 3Q12) and FY13F ROE of 28.6%. STE trades at FY13/14F P/Es of 17.7x/16.7x, which are in the middle of its historical range (P/E: 11-25x). We regard its FY12/13/14F dividend yields as attractive at an average of 5%. Our DCFbased target price is SGD4.05, with a WACC of 7% and terminal growth rate of 1%. Cash flows are discounted to FY12F.
Buy
SGD 4.05 SGD 3.52 +15.1%
Anchor themes Industry amalgamation, acquisitions and joint ventures will likely lead to a pooling of expertise and resources. We believe aircraft MRO (maintenance repair and overhaul) outfits, most focussed on building technical efficiency/proficiency, will capture a greater market share. Nomura vs consensus Our FY13/14F earnings and target price are marginally ahead of consensus estimates.
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
5,991 528 528 17.20c 6.4 20.5 13.9 6.1 4.4 29.9
6,311 571 571 18.59c 8.1 N/A N/A N/A N/A 29.9
6,311 571 571 18.59c 8.1 18.9 12.8 5.7 4.4 29.9
6,711 609 609 19.84c 6.7 N/A N/A N/A N/A 28.6
6,711 609 609 19.84c 6.7 17.7 11.9 5.1 4.7 28.6
7,091 645 645 21.02c 5.9 N/A N/A N/A N/A 29.0
7,091 645 645 21.02c 5.9 16.7 11.2 4.7 4.7 29.0
1.3 net cash net cash net cash net cash net cash net cash
Nomura | ST Engineering
November 23, 2012
Key data on ST Engineering


FY10 5,984 -4,875 1,109 -523 587 719 -132 0 587 -3 44 0 627 -123 505 -14 0 0 491 491 -442 49 FY11 5,991 -4,859 1,132 -524 608 743 -135 0 608 13 35 0 655 -115 541 -13 0 0 528 528 -376 152 FY12F 6,311 -5,142 1,169 -515 654 799 -145 0 654 13 42 0 709 -124 585 -14 0 0 571 571 -376 195 FY13F 6,711 -5,494 1,217 -515 702 854 -152 0 702 10 44 0 756 -132 623 -14 0 0 609 609 -400 209 FY14F 7,091 -5,836 1,256 -515 740 900 -160 0 740 15 45 0 800 -140 660 -15 0 0 645 645 -400 245

(%) Absolute (SGD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (SGD) 3-mth avg daily turnover (USDmn) Major shareholders (%) Temasek Holdings 1M 0.3 0.0 4.4 8,817.4 49.4 3.62/2.61 5.38 3M 12M 5.1 28.0 7.2 36.3 9.9 18.8
50.6
Notes
Our FY12-14F EBIT margins are firm above 10%
21.8 21.8 21.8 25.1 4.1 12.3 6.6 13.5 16.3 18.5 12.0 9.8 8.2 19.5 90.0 4.6 2.1 30.3 11.4
20.5 20.5 20.5 23.6 4.4 65.9 6.1 13.9 16.8 18.9 12.4 10.1 8.8 17.5 71.2 5.4 2.4 29.9 11.0
18.9 18.9 18.9 21.8 4.4 15.1 5.7 12.8 15.5 18.5 12.7 10.4 9.0 17.5 65.8 3.2 1.4 29.9 11.3
17.7 17.7 17.7 20.4 4.7 15.1 5.1 11.9 14.3 18.1 12.7 10.5 9.1 17.5 65.6 3.0 1.3 28.6 11.6
16.7 16.7 16.7 19.3 4.7 14.0 4.7 11.2 13.4 17.7 12.7 10.4 9.1 17.5 62.0 2.8 1.3 29.0 11.7
7.9 0.7 6.5 9.6 9.6
0.1 3.3 3.6 6.4 6.4
5.3 7.6 7.6 8.1 8.1
6.3 6.9 7.3 6.7 6.7
5.7 5.4 5.5 5.9 5.9
16.16c 16.16c 16.16c 0.53 0.15
17.20c 17.20c 17.20c 0.58 0.16
18.59c 18.59c 18.59c 0.62 0.16
19.84c 19.84c 19.84c 0.69 0.17
21.02c 21.02c 21.02c 0.76 0.17
41
Nomura | ST Engineering
November 23, 2012
Cashflow(SGDmn)
FY10 719 237 -88 868 -277 592 -6 -195 55 55 51 552 -475 0 0 0 0 -475 78 1,514 1,591 -527 FY11 743 -487 -92 164 -324 -160 -5 -207 90 90 369 176 -402 0 0 0 0 -402 -226 1,592 1,366 23 FY12F 799 0 -81 718 -199 519 1 -297 105 105 53 485 -444 0 0 0 0 -444 41 1,366 1,407 -42 FY13F 854 -50 -88 716 -200 516 1 -200 100 100 76 593 -550 0 0 0 0 -550 43 1,407 1,450 -142 FY14F 900 -37 -89 774 -200 574 1 -200 94 94 31 593 -550 0 0 0 0 -550 43 1,450 1,493 -241 Notes
Strong free cash flow generation
Balancesheet(SGDmn)
FY10 1,592 0 1,020 1,470 835 4,917 18 1,302 0 913 119 7,268 68 1,589 1,894 3,551 997 0 993 5,541 105 0 678 944 0 0 1,622 7,268
FY11 1,366 0 1,188 1,594 819 4,967 13 1,357 0 957 113 7,407 208 1,691 1,581 3,479 1,181 0 871 5,531 110 0 723 1,043 0 0 1,766 7,407
FY12F 1,407 0 1,251 1,695 819 5,172 14 1,412 0 1,006 114 7,718 208 1,781 1,655 3,644 1,158 0 882 5,683 124 0 723 1,187 0 0 1,911 7,718
FY13F 1,450 0 1,330 1,791 819 5,390 14 1,460 0 1,056 115 8,035 208 1,894 1,667 3,769 1,100 0 901 5,769 138 0 723 1,405 0 0 2,128 8,035
FY14F 1,493 0 1,406 1,826 819 5,544 15 1,500 0 1,107 117 8,283 208 1,901 1,733 3,842 1,045 0 920 5,807 153 0 723 1,599 0 0 2,323 8,283
Notes
Remains robust with strong net cash position
1.38 176.3
1.43 na
1.42 na
1.43 na
1.44 na
net cash net cash
0.03 1.3
net cash net cash
net cash net cash
net cash net cash
63.5 106.1 111.5 58.1
67.2 115.1 123.2 59.1
70.7 117.0 123.6 64.2
70.2 115.8 122.1 63.9
70.4 113.1 118.7 64.8
42
Sembcorp Marine
CAPITAL GOODS
SCMN.SI SMM SP
EQUITY RESEARCH
Pure play offshore yard, strong balance sheet
Slow pace of revenue booking, lower margins crimp earnings

Action: Maintain Buy on strong order book, robust balance sheet with new capacity option. We cut our FY13/14F earnings on lower margin expectations and reduce target to SGD5.20 (SGD5.60 previously) as we roll over our DCF base to FY13F We have cut our FY13/14F earnings to reflect lower margins witnessed in 3Q/9M12 results, likely due to new rig types/accommodation units being built, and the running-in of new facilities. A robust order book worth SGD12.1bn provides earnings visibility in a tougher operating environment marked by intensifying competition among rig builders. SMMs 9M12 results disappointed with PATMI down 29% y-y to SGD371mn on lower revenue recognition and forex loss of SGD14.8mn. Though EBIT margins improved on q-q basis to 14.1% from 13.1% in 2Q12, the pace of revenue booking was slower than our as well as consensus expectations. Catalysts: Stronger-than-expected margins, higher new contract awards from deepwater EBIT margins coming in above our estimates of 12%/12.3% for FY13/14F will be a key positive as will be additional new orders, especially for accommodation semi-subs (3 options from Prosafe) and FPSO topside modules. We believe semi-sub new orders can stage a recovery in 2013. Valuation SMM is currently trading at FY13/14F P/Es of 17.2x/15.2x, with P/B at 3.1x/2.8x, in the mid-range of the historical trading band of 8-28x for P/E and 1.5-4.5x for P/B. Average FY12-14F ROE stands at 23% while FY13F dividend yield is attractive at 4.2%.
Buy
SGD 5.20 SGD 4.25 +22.4%
Anchor themes Competition amongst international shipyards for offshore E&P contracts will intensify in 2013 as commercial shipbuilders grow even more lean and hungry. While the barriers to entry are high, and the learning process has sunk many a novice deep in red ink, we believe it will also impact margins at the more established offshore yards. Nomura vs consensus Our target price is marginally below market consensus estimates.
FY11 Actual Old
FY12F New Old
FY13F New Old
FY14F New
3,960 746 746 36.02c -13.3 11.8 7.8 3.6 5.9 36.0
4,169 510 510 24.47c -32.1 N/A N/A N/A N/A 24.5
4,169 510 510 24.47c -32.1 17.4 10.9 3.4 4.2 24.5
4,879 582 582 27.93c 14.2 N/A N/A N/A N/A 27.9
4,823 516 516 24.76c 1.2 17.2 11.0 3.1 4.2 24.8
5,376 642 642 30.78c 10.2 N/A N/A N/A N/A 20.9
5,348 583 583 27.94c 12.9 15.2 9.8 2.8 4.2 19.3
net cash net cash net cash net cash net cash net cash net cash
Nomura | Sembcorp Marine
November 23, 2012
Key data on Sembcorp Marine


FY10 4,555 -3,426 1,129 -186 0 943 1,026 -83 0 943 25 58 53 1,078 -184 894 -34 0 0 860 0 860 -746 115 FY11 3,960 -3,094 866 -129 0 737 823 -86 0 737 62 63 -2 860 -91 769 -23 0 0 746 0 746 -518 228 FY12F 4,169 -3,460 709 -165 0 543 638 -95 0 543 40 52 0 635 -105 530 -20 0 0 510 0 510 -375 135 FY13F 4,823 -4,003 820 -239 0 581 685 -104 0 581 15 47 0 643 -106 537 -21 0 0 516 0 516 -375 141 FY14F 5,348 -4,438 909 -249 0 660 799 -139 0 660 15 48 0 722 -119 603 -21 0 0 583 0 583 -375 207

(%) Absolute (SGD) Absolute (USD) Relative to index Market cap (USDmn) Estimated free float (%) 52-week range (SGD) 3-mth avg daily turnover (USDmn) Major shareholders (%) SembCorp Industries 1M 3M 12M
-12.6 -16.2 12.1 -12.8 -14.5 19.4 -8.4 -11.3 7,235.3 39.0 5.46/3.65 19.46 2.9
61.1
Notes
10.2 10.2 10.2 12.5 8.5 6.3 3.4 5.5 6.0 24.8 22.5 20.7 18.9 17.1 86.7 1.6 0.9 41.5 39.4
11.8 11.8 11.8 14.4 5.9 30.2 3.6 7.8 8.7 21.9 20.8 18.6 18.8 10.6 69.4 11.1 5.1 36.0 29.5
17.4 17.4 17.4 21.3 4.2 34.7 3.4 10.9 12.6 17.0 15.3 13.0 12.2 16.5 73.6 10.1 4.4 24.5 16.6
17.2 17.2 17.2 21.0 4.2 22.2 3.1 11.0 12.8 17.0 14.2 12.0 10.7 16.5 72.7 9.3 4.3 24.8 14.2
15.2 15.2 15.2 18.6 4.2 13.4 2.8 9.8 11.7 17.0 14.9 12.3 10.9 16.5 64.4 8.4 3.2 19.3 14.1
Relatively attractive dividend yield at 4.2% and average FY12-14F ROE at 23%
-20.4 9.0 8.8 22.9 22.9
-13.1 -19.7 -21.8 -13.3 -13.3
5.3 -22.5 -26.3 -32.1 -32.1
15.7 7.4 6.9 1.2 1.2
10.9 16.6 13.6 12.9 12.9
41.53c 41.53c 41.53c 1.25 0.36
36.02c 36.02c 36.02c 1.17 0.25
24.47c 24.47c 24.47c 1.27 0.18
24.76c 24.76c 24.76c 1.38 0.18
27.94c 27.94c 27.94c 1.52 0.18
44
Nomura | Sembcorp Marine
November 23, 2012
Cashflow(SGDmn)
FY10 1,026 383 -12 1,397 -73 1,324 3 7 0 0 -86 1,248 -311 0 0 0 0 -311 937 1,979 2,916 -2,907 FY11 823 -496 -36 292 -438 -146 0 0 0 0 -29 -175 -751 0 0 0 0 -751 -926 2,915 1,990 -1,925 FY12F 638 -335 -48 255 -420 -165 0 0 0 0 452 287 -285 0 0 0 0 -285 2 1,990 1,992 -1,345 FY13F 685 -239 -48 398 -450 -52 0 0 0 0 372 320 -285 0 0 0 0 -285 35 1,992 2,027 -844 FY14F 799 -90 -48 661 -450 211 0 0 0 0 94 305 -285 0 0 0 0 -285 20 2,027 2,047 -590 Notes
Strong free cashflow from robust offshore & marine orderbook
Balancesheet(SGDmn)
FY10 2,915 0 153 751 81 3,900 594 682 0 0 103 5,279 8 1,454 1,074 2,536 0 0 143 2,680 0 0 457 2,143 0 0 2,599 5,279
FY11 1,990 0 421 926 62 3,399 507 1,034 0 0 111 5,052 35 1,777 680 2,492 30 0 116 2,637 0 0 471 1,944 0 0 2,414 5,052
FY12F 1,992 0 526 1,410 34 3,962 559 1,454 0 0 111 6,087 28 1,885 798 2,711 619 0 118 3,448 0 0 471 2,169 0 0 2,639 6,087
FY13F 2,027 0 579 1,480 58 4,144 606 1,904 0 0 111 6,765 234 1,695 895 2,825 949 0 121 3,895 0 0 471 2,400 0 0 2,870 6,765
FY14F 2,048 0 550 1,554 61 4,212 653 2,354 0 0 111 7,331 368 1,484 1,065 2,916 1,090 0 157 4,163 0 0 471 2,697 0 0 3,168 7,331
Notes
Strong financial position with relatively low gearing
1.54 na
1.36 na
1.46 na
1.47 na
1.44 na
net cash net cash
net cash net cash
net cash net cash
net cash net cash
net cash net cash
15.3 106.7 160.8 -38.8
26.5 98.9 190.6 -65.2
41.6 123.5 193.7 -28.6
41.8 131.7 163.2 10.3
38.5 124.8 130.7 32.5
45
November 23, 2012
Appendix A-1
Analyst Certification
I, Lisa Lee, hereby certify (1) that the views expressed in this Research report accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of my compensation is tied to any specific investment banking transactions performed by Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures

The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura Group Companies involved in the production of Research are detailed in the disclaimer below.
Issuer name Cosco Corp (Singapore) Keppel Corp Sembcorp Industries Sembcorp Marine STX OSV ST Engineering Yangzijiang Shipbuilding Holdings
Ticker COS SP KEP SP SCI SP SMM SP SOH SP STE SP YZJ SP
Price SGD 0.89 SGD 10.55 SGD 4.98 SGD 4.38 SGD 1.37 SGD 3.50 SGD 0.89
Price date 22-Nov-2012 22-Nov-2012 22-Nov-2012 22-Nov-2012 22-Nov-2012 22-Nov-2012
Stock rating Reduce Buy Buy Buy Neutral Buy
Sector rating Not rated Not rated Not rated Not rated Not rated Not rated Not rated
Disclosures
22-Nov-2012 Reduce
Previous Rating
Issuer name Cosco Corp (Singapore) Keppel Corp Sembcorp Industries Sembcorp Marine STX OSV ST Engineering Yangzijiang Shipbuilding Holdings Previous Rating Buy Neutral Neutral Strong Buy Reduce Neutral Neutral Date of change 08-Aug-2008 03-Jul-2009 01-Mar-2011 04-Nov-2008 15-May-2012 02-Oct-2009 12-Apr-2012
Rating and target price changes

Ticker Old stock rating New stock rating Old target price New target price
Keppel Corp Sembcorp Industries Sembcorp Marine
KEP SP SCI SP SMM SP
Buy Buy Buy
Buy Buy Buy
SGD 13.80 SGD 6.20 SGD 5.60
SGD 13.20 SGD 6.00 SGD 5.20
Keppel Corp (KEP SP)

Rating and target price chart (three year history)
SGD 10.55 (22-Nov-2012) Buy (Sector rating: Not rated)

Date 04-Apr-12 21-Nov-11 04-Oct-11 18-Apr-11 28-Jan-11 01-Dec-10 08-Jul-10 22-Apr-10 12-Feb-10 11-Jan-10 Rating Target price 13.80 11.10 10.50 13.90 15.00 13.10 11.00 11.60 10.65 10.20 Closing price 10.93 9.00 7.10 11.418 10.927 9.964 7.818 8.823 7.38 7.708
For explanation of ratings refer to the stock rating keys located after chart(s)
Valuation Methodology Our target price of SGD13.20 is based on a 5% discount to our sum-of-the-parts (SOTP) valuation of SGD13.90. Keppel Lands (KPLD SP) valuation is based on Nomuras target price of SGD4.57 per share and M1s (M1 SP) valuation is based on Nomura's target price of SGD3.00 per share.
46
November 23, 2012
Risks that may impede the achievement of the target price Our target price could be hurt by a larger-than-expected fall in margins from the groups O&M division; a significant and continued fall in orderbook build-up; a bigger-than-expected decline in the asset values and rents at its property division; or a collapse in margins at its infrastructure division.
Sembcorp Industries (SCI SP)
Rating and target price chart (three year history) Date 09-Nov-12 20-Sep-12 14-May-12 10-Feb-12 04-Oct-11 01-Mar-11 01-Mar-11 25-Feb-10 12-Feb-10 Rating Target price 6.20 6.76 6.10 5.80 4.20 Buy 5.78 4.25 3.85 Closing price 4.99 5.68 4.76 4.89 3.32 4.93 4.93 3.70 3.56
Valuation Methodology Our target price of S$6.00 for Sembcorp Industries (SCI) is based on a 5% discount to our sum-of-theparts valuation, with the groups offshore &marine business based on our latest target price for Sembcorp Marine, while the groups utilities business is based on a discounted cash flow valuation (cash flows discounted back to 2013). Risks that may impede the achievement of the target price Risks to our target price for Sembcorp Industries (SCI) include a decline in marine or utilities margins (or increased competition or higher input costs).
Sembcorp Marine (SMM SP)
Rating and target price chart (three year history) Date 05-Nov-12 09-Aug-12 10-Feb-12 04-Oct-11 23-Feb-11 18-Nov-10 12-Oct-10 08-Jul-10 24-Feb-10 12-Feb-10 Rating Target price 5.60 6.32 6.08 4.50 6.54 6.03 5.18 4.73 4.70 4.10 Closing price 4.69 4.99 5.04 3.07 5.21 5.07 4.29 3.89 3.73 3.43
Valuation Methodology Our target price of SGD5.20 is based on our sum-of-the-parts (SOTP) valuation, comprising a DCF valuation (WACC 7%, 1% terminal growth over a 15-year period)of the groups shipyard businesses, which includes its three Singapore yards, including Cosco Shipyard group and its remaining 4.8% stake in listed Cosco Corp. Risks that may impede the achievement of the target price A sharp downturn in oil prices could have a negative impact on potential offshore rig orders , as well as lead to potential further delivery delays. Extensive cancellations of the groups O&M orderbook or significant margin erosion on these O&M projects, could have a negative impact on our target price.
47
November 23, 2012
ST Engineering (STE SP)

Rating and target price chart (three year history)

Date 12-Oct-12 09-May-12 31-Mar-10 17-Dec-09 Rating Target price 4.05 3.70 3.90 3.83 Closing price 3.47 2.97 3.19 3.14
Valuation Methodology Our DCF-based target price stands at SGD4.05, with a WACC of 7% and terminal growth rate of 1%. Cash flows are discounted to FY12F. Risks that may impede the achievement of the target price We note possible downside risks to our target price from another sharp downturn in the global aircraft maintenance, repair and overhaul business, which accounts for 35-40% of group EBIT. Increased competition within the MRO space, as well as OEM pricing pressure, could also exert pressure on our margin assumptions. While earnings from its defence businesses form a good base, these are sometimes project-driven and could be lumpy, depending on project size and deliveries.
48
November 23, 2012
Important Disclosures
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The distribution of all ratings published by Nomura Global Equity Research is as follows: 43% have been assigned a Buy rating which, for purposes of mandatory disclosures, are classified as a Buy rating; 40% of companies with this rating are investment banking clients of the Nomura Group*. 45% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 46% of companies with this rating are investment banking clients of the Nomura Group*. 12% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 22% of companies with this rating are investment banking clients of the Nomura Group*. As at 30 September 2012. *The Nomura Group as defined in the Disclaimer section at the end of this report.
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The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis, etc. STOCKS A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral', indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. Benchmarks are as follows: United States/Europe: please see valuation methodologies for explanations of relevant benchmarks for stocks, which can be accessed at: http://go.nomuranow.com/research/globalresearchportal/pages/disclosures/disclosures.aspx; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology. SECTORS A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance, indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price, subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock, based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc. A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the company's earnings differ from estimates.
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November 23, 2012
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Singapore O&M Radar

Offshore & marine outlook for 2013

November 23, 2012

Competition heats up as rigs backlog gets delivered: We expect 2013 to

Nomura | Singapore O&M Radar

November 23, 2012

Global Oil & Gas Capex outlook in 2013

Offshore E&P markets in 2013

Tight offshore markets but subdued order momentum

Jack-Up: strong demand meets delivery surge

2013: mega year for JU deliveries

Semi-subs in 2013: why we remain bullish on new orders

Competition at the gates

Singapore offshore yards dominate for JUs, strong in semi-subs

Protecting the moat: how Singapore yards have done it?

Singapore yards position not impregnable

Nomura | Singapore O&M Radar

November 23, 2012

Global Oil & Gas Capex outlook in 2013

Fig. 2: Global oil and gas capex growth

500 400 300 200 100 2003 2004 2005 2006

Global Exploration Capex

Source: Wood Mackenzie, Pegasus Global, Company data, Nomura estimates

Nomura | Singapore O&M Radar

November 23, 2012

Fig. 3: Global oil and gas capex 2013F vs original estimates

+ 4.5 + 9.8 + 16.7 + 6.4 + 0.9 + 7.9

Expected 2012 Brent

Actual 2012 Brent YTD

Source: Wood Mackenzie, Nomura estimates

Fig. 4: Number of deepwater exploration wells

250 200 150 100 50 0

Source: Wood Mackenzie, Spears & Associates, Nomura estimates

Nomura | Singapore O&M Radar

November 23, 2012

Fig. 5: NOC/IOC capex growth

500 400 300 200 100 2006 2009 2010

Global NOC Exposure (%)

Source: Wood Mackenzie, Pegasus Global, Company data, Nomura estimates

Nomura | Singapore O&M Radar

November 23, 2012

Offshore E&P markets in 2013

Jack-Up: strong demand meets delivery surge

Fig. 6: JU utilisation vs oil prices

Fig. 7: Avg. fixture term across JU categories

Source: Bloomberg, ODS Petrodata, Nomura research

Source: ODS Petrodata, Nomura research

Nomura | Singapore O&M Radar

November 23, 2012

Fig. 8: Worldwide JU fleet utilisation

Fig. 9: JU (300 + cantilever) dayrates in GoM

Source: ODS Petrodata, Nomura research

Source: ODS Petrodata, Nomura research

Fig. 10: Utilisation across JU segments

Fig. 11: Dayrates across JU segments

230 210 190 170 150 130 110 90 70

Harsh high spec

Harsh high spec

Source: ODS Petrodata, Nomura research

Source: ODS Petrodata, Nomura research

2013: mega year for JU deliveries

Fig. 12: JU delivery schedule by category

Source: ODS-Petrodata, Nomura research

Nomura | Singapore O&M Radar