April 25, 2012

SINGAPORE EQUITY Investment Research
DMG & Partners Research OIL & GAS
Edison Chen +65 6232 3892 edison.chen@sg.oskgroup.com Terence Wong, CFA +65 6232 3896 terence.wong@sg.oskgroup.com
OIL & GAS

Initiating Coverage

Private Circulation Only

SBI Offshore

BUY Price Previous Target

S$0.21 S$0.34

a leading turnkey drilling equipment Asia’s leading turnkey solution equipment drilling provider with a portfolio of OEM offshore equipment product lines. solution provider
Stock Profile/Statistics Bloomberg Ticker STI Issued Share Capital (m) Market Capitalisation (S$m) 52 week H | L Price (S$) Average Volume (‘000) YTD Returns (%) Net gearing (x) Altman Z-Score ROCE/WACC Beta (x) Book Value/share (S¢) Major Shareholders (%) Tan Woo Thian David Hui Choon Ho Jonathan 37.7 36.3 SBIO SP 2,974.4 121.7 25.6 0.225 0.138 23.1 0.0 Net cash 3.6 0.5 Na 10.2

A great leap forward as earnings multiply
SBI Offshore (SBI) is a home-grown Singapore offshore services provider primarily engaged in distribution of offshore equipment with reputable brand name to shipyards and other offshore players in the Asia-Pacific region. Through investments, SBI has transformed itself to become a leading turnkey drilling equipment solution provider. We favour SBI because of 1) its leap to become Asia’s third turnkey drilling equipment solution provider for tender rigs, 2) growth prospects from its products and 3) clear undervaluation. Initiate with BUY at a TP of S$0.34 based on 9.9x industry average FY12 P/E. Catalysts include 1) more turnkey contract wins, and 2) move into the contract manufacturing market for offshore equipment manufacturers such as Aker. Metamorphosis: Asia’s third turnkey drilling equipment solution provider. SBI has recently become the first ever Asian turnkey drilling equipment solution provider joining the ranks of drilling equipment giants like Aker and NOV. With its maiden contract win of US$30m, SBI has found its niche in the smaller yet still lucrative tender rig market. Robust industry outlook provide growth prospects for all products segments. SBI is currently in possession of multiple OEM product lines, ranging from lifeboats to offshore cranes. In view of the robust prospects for the offshore oil & gas industry, we believe that outlook for SBI remains bright.

Share Performance (%) Month 1m 3m 6m 12m Absolute 5.0 16.7 16.7 (10.6) Relative 5.5 12.3 8.9 (3.7)

6-month Share Price Performance
(S$) 0.25

10-fold earnings jump shows clear undervaluation. In view of the record orderbook of US$41m (5.8x of FY11 revenue) as well as its contract win momentum, we expect SBI’s earnings to surge 10-fold to US$3.2m this year and subsequently double again in FY13. Based on its forward earnings, SBI looks attractive at the current trading price of S$0.21, as its P/E will fall drastically to 6.2x in FY12, and further to 2.8x in FY13. FYE 30 Dec (US$m) Turnover Net profit % chg YoY Consensus EPS (S¢) DPS (S¢) Div Yield (%) ROE (%) ROA (%) P/E (x) P/B (x) FY09 12.2 1.9 (16.1) Na 2.3 0.2 1.0 28.5 15.6 9.0 2.6 FY10 9.3 0.2 (91.7) Na 0.2 0.2 1.0 1.7 1.1 134.6 2.0 FY11 7.1 0.3 56.3 Na 0.3 0.2 1.0 2.6 1.9 73.4 2.1 FY12F 32.0 3.2 1168.3 Na 3.4 0.8 4.0 27.3 11.8 6.2 1.7 FY13F 66.8 7.1 124.3 Na 7.6 1.9 9.0 43.4 15.6 2.8 1.2

0.20

0.15

0.10

0.05

26-Oct-11

26-Nov-11

26-Dec-11

26-Jan-12

26-Feb-12

26-Mar-12

Source: Company data and DMG Estimates

DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. OSK Research
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DMG Research

TABLE OF CONTENTS

Company Background Industry Analysis Investment Merits Risks Earnings Forecast Valuation Financial Tables Appendix Disclaimer

3 6 10 11 12 14 15 16 21

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COMPANY BACKGROUND Established in 1994, and listed on the Catalist board of SGX since 2009, SBI Offshore (SBI) is a home-grown Singapore offshore services provider primarily engaged in marketing and distribution of offshore equipment with reputable brand name to shipyards and other offshore players in the Asia-Pacific region. Through directly investing or partnering with strong offshore original equipment manufacturer (OEM), SBI has transformed itself to become a leading turnkey drilling equipment solution provider with strong engineering capabilities and OEM product lines.

Figure 1: SBI’s group structure

Since 2003, SBI has sold more than US$2 billion worth of products on behalf of its principals. This is largely thanks to SBI’s strong sales network with a geographical footprint that covers the globe, including countries like Singapore, China, Malaysia, Indonesia, Philippine, Vietnam, United States of America, and Brazil. SBI specialises in the distribution of offshore drilling equipment, which is the most important component of an offshore rig, generally representing 60% of total construction costs. Most notably, it is the exclusive ASEAN-China distributor for Aker Solution’s drilling equipment division, which is the world’s second largest drilling equipment and systems provider. This means that all orders within the region would be handled by SBI, regardless of whether the customers go through SBI or Aker directly. About Aker Solution Listed on the Oslo Stock Exchange, Aker Solution is a large Norwegian oil services company that offers engineering, construction, maintenance, modification and operation services for new and existing oil & gas fields. As at end 2011, the company generated profits of NOK1.6 billion (S$347m) on the back of NOK36.5 billion revenue and hired 18,450 employees worldwide. It is ranked by CNN as one of the top ten most admired oil & gas services companies in the world. Aker has 40 years of extensive experience from offshore drilling units, and is the world’s second largest drilling equipment and systems provider, with National Oilwell Varco (NOV) being the largest, generating US$14.6 billion (S$18.2 billion).

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Figure 2: Product lines
Principal / Associate / Subsidiary Aker Solution Products Drilling Equipment

Figure 3: 2011 revenue geographical breakdown
USA 1% Others 2%

Jiangyin Neptune Marine Appliance (JNMA)

Lifeboat / Davit

Singapore 32% Europe 46%

RBV Energy Singapore

API Pipe/ Fitting / Manifold

China 5%

Sea Reef Offshore (Sea Reef)

Deck Machinery / Offshore Load Handling System/ Offshore Crane
Source: Company data

Southeast Asia (ExSing) 14%

Source: Company data

Other than drilling equipment, SBI has access to multiple offshore OEM product lines ranging from lifeboats to offshore cranes. This access is gained through the acquisition of Sea Reef Offshore (100% subsidiary), a partnership with RBV Energy (50% joint-venture) and an investment in JNMA (associate with 35% stakes). While Sembcorp Marine (PPL shipyard, Jurong Shipyard) and COSCO (COSCO Nantong shipyard) are the direct customers for these products, end consumers include global oil & gas giants such as Atwood, Ensco, Maersk, Transocean and Seadrill. Secured the first turnkey drilling equipment project Leveraging on the enhanced engineering capabilities with recent investments as well as its established track record with Aker, SBI has been moving strategically up the value chain through the bidding for tender rig drilling equipment projects. It has recently won a turnkey tender rig drilling equipment solution project from a Southeast Asian customer worth in excess of US$30m. We believe this is a great leap forward achieved by SBI, as the tender rig contract win acts as a strong testimonial to the group’s engineering and manufacturing capabilities. Under the contract, SBI will perform the entire engineering work in-house through its US Houston based subsidiary Sea Reef Offshore. While the key components such as the top drive, rotary table, mud pump and drawwork are to be purchased from Aker, the rest of the components will either be manufactured by SBI or sourced from third party manufacturers. Figure 4: Tender rig drilling equipment solution package         
Source: Company data

Derrick Set Mud Processing equipment Cement system Lifting equipment Power system Blowout preventer Instrumentation Drillstring handling Substructures

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OEM for drilling equipment in the future? There is an underlying need for Aker and NOV to lower production costs and to better serve the Asian shipyards which account for the building of approximately 80% of all mobile offshore drilling units (MODUs) and construction units in the world. In view of this need, SBI is able to tap into this niche and create opportunities for these western offshore drilling equipment companies to outsource their production processes to Asia. SBI has established a joint venture (30% stake) with Honghua Group (listed on the Hong Kong Exchange), China’s second largest land-rig builder, which specialises in contract manufacturing and fabrication services for offshore and marine equipment companies.. Benefiting from Honghua’s enormous production facilities as well as SBI’s in-depth knowledge in the offshore drilling equipment industry, the joint venture is expected to have significant first-mover advantage to become the first Asian contract manufacturer in the industry. Apart from the partnership with Honghua Group, SBI also possess direct or indirect strong production capabilities with three manufacturing facilities in Jiangsu province, China, with total manufacturing area of more than 45,000 square metres. These facilities have been audited and approved by Aker to carry out subcontract work. Management is optimistic that once the turnkey tender rig project is executed successfully, SBI will be able to break into this lucrative contract manufacturing market. Figure 5: SBI’s production facilities

Jiangyin Neptune Marine Appliance Lifeboat Facility
Source: Company data

Jiangyin Neptune Lifeboat/Davit Facility

Jiangyin SBI Offshore Equipment Facility

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INDUSTRY ANALYSIS Robust oil & gas industry outlook Demand for oil to outstrip supply. According to Clarkson, global demand for oil will grow 1.5% YoY to 32.7 billion barrels underpinned by resilient economic growth in Asia. On the other hand, disrupted by unrest in Middle East & North Africa, global crude oil production will only grow 1.4% YoY to 30.5 billion in 2012. As such, demand will continue to outstrip supply by 1.8 billion barrels, providing strong support for the offshore exploration and production (E&P) spending. Consequently, spending sentiment of global oil majors and national oil companies remain bullish as they have provided very strong capex guidance, growing around 6-8% YoY in 2012. Figure 6: Global oil demand & production
mb/d
92 90 88 86 84 82 80 78 76 74 2009

%

%

4 3 2

1
0

-1
-2 2010 2011 2012f

Global Oil Demand (LHS) Global Crude Oil Production (LHS) Global Oil Demand YoY chg (RHS) Global Crude Oil Production YoY chg (RHS)
Source: Clarkson

Asian shipyards to dominate the MODU market. Historically, approximately half of the MODUs such as jack-up rigs, semi-submersible platforms and drillships were constructed by either US or Singapore shipyards. According to Clarkson, the market now favours only Asia, with China and Korea aggressively snapping up market share and Singapore holding onto its strong position. Given that SBI is Aker’s exclusive ASEAN-China agent and Aker is estimated to have around 17% of the drilling equipment market share, we believe that SBI is in a very favourable position. As long as Aker continues to win drilling equipment contracts within this region (the most recent one being a jack-up rig to be built in a Chinese shipyard), SBI is poised to benefit. Figure 7: MODU order book by country (unit) Figure 8: SBI’s target market share (unit)

Singapore , 46

Other, 46

Other, 40

SBI's market (ASEANChina), 83

China, 31 South Korea, 52

South Korea, 52

Source: Clarkson, as of 1st Mar 2012

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Renewed interests in marginal field development provide opportunities. We observe that, in the recent years, the number of start-up oil fields suffered a steep decline, despite the fact that a decent number of new fields are still being discovered every year. Such a phenomenon is more apparent within the Asia Pacific region which we attribute to the fact that many newly discovered fields were considered to be marginal fields, or fields that were not economically feasible to develop. Figure 9: Global oil field discoveries and start-up (no. of fields)
200
160 120

Figure 10: Asia Pacific oil field discoveries and start-up (no. of fields)
60 50 40
30

80 40 0 2009 2010 2011 New f ield discoveries
Start-up f ields
Source: Clarkson

20 10 0 2009 2010 2011 New f ield discoveries

Start-up f ields

However, in view of higher crude oil prices, depleting brown field reserves and lower discovery rates of large green fields, development of marginal fields within this region has gained popularity underpinned by a strong government support. For instance, Malaysia currently has 106 marginal oil fields containing 580 million barrels of oil and Petronas plans to develop 27 of them, with the Berantai fields and Balai cluster already contracted to be developed. Similarly, the Indonesia government also foresees a decline in oil & gas production and has identified 52 marginal fields for development. Since the cost of drilling the wells make up a sizable portion of the marginal field development cost, choosing the right drilling rig is important. According to a research paper published by Society of Petroleum Engineers, tender rig is a better choice to enhance economics, due to its low development cost as well as its mobility in servicing multiple wells in close proximity. Therefore, demand for tender rig has been strong and we expect this to persist for the next few years given the interest in marginal field developments. Seadrill, for instance, owns 16 tender rigs at the moment with the majority of them operating in marginal fields in Southeast Asia. It has recently ordered another tender barge worth of US$135m from COSCO. This is on top of the three tender barges that are under construction and another semi-sub tender rig building in Keppel FELS. About Tender Rig As opposed to platform rig, facilities required to support the drilling operation such as power, living quarters, etc, are located on the tender, while actual drilling equipment such as the derrick, topdrive, blowout preventer, etc are installed on the platform. As such, the design load and required deck area of using a tender rig is only about one quarter of that of a platform rig of comparable capacity. Hence, the cost of constructing a tender rig is significantly lower than that of other rigs. There are two types of tender rig, with the barge type fit for shallow water, and the more powerful semi-submersible type suitable for deep water.

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Figure 11: Cost comparison between tender rig and other MODUs Drillship or Semisub Semisub Tender rig 170,000 200 Jack-up Tender barge

Average day rates (US$/day) Average construction cost (US$m)
Source: Seadrill

500,000 600

145,000 200

115,000 115

Since the building costs for tender rigs are much lower compared to other MODUs, it tends to carry a lesser amount of drilling equipment with a simpler design. As such, big players such as NOV and Aker places less emphasis on this market. SBI spotted the opportunity and managed to partner with Aker to provide turnkey solutions with competitive pricing and customisation flexibility. We believe the recent contract win will open up more opportunities for such type of turnkey project in the future. Figure 12: Offshore drilling & completion capex (US$m)
1400 1200

1000
800 600 400

Philippines Malaysia Indonesia India China

Australia 200
0 2009
Source: Frost & Sullivan

2010

2011

2012

Niche offshore lifeboat market Because of the recent occurrence of offshore disasters, companies are placing increasingly importance on the safety and survival of personnel. Consequently, along with the boom of the offshore market, comes a huge demand for life-saving appliance. SBI’s associate JNMA focus on the higher-end, large-capacity (>60 people) lifeboat market as opposed to the highly competitive self-rescue boat (small capacity) and the liferaft (collapsible without a motor) market. This market is currently dominated by three international players, namely, Norsafe, Schat-Harding and JNMA with estimated worldwide sales of around 1500 sets, or US$200m last year. Generally, every new additional offshore fleet such as drilling rig or production unit will require three to four sets of lifeboat sufficient for all of the passenger and crew on board to perform emergency evacuation. Furthermore, the International Maritime Organisation (IMO) has been tightening safety requirements in the past few years through the International Convention for the Safety of Life at Sea (SOLAS) treaty. Most notably, the assumed weight of persons on lifeboat was increased from 75kg to 82.5kg from July 2010 onwards, resulting in a new round of lifeboats purchases.

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Figure 13: World offshore fleet (unit)
20000 18000

Figure 14: Offshore lifeboat volume market share
Other 3%

16000
14000 12000 10000 8000 2008 2009 2010 2011 Of f shore mobile f leet

JNMA 17% Norsaf e 45%

SchatHarding 35%

Of f shore f ixed production structures
Source: Clarkson Source: Company data and DMG estimates

While ship-launched lifeboat (lowered into water by davits from deck) is priced around US$500,000 to US$750,000 per set, freefall lifeboats (which drops instantly into water from deck) can cost as much as US$8m per set. Despite JNMA selling 250 lifeboat sets last year, the revenue it generated was five to six times lesser compared to that of Norsafe’s, due to the absence of freefall lifeboat contribution. Though JNMA was capable of producing freefall lifeboats, the majority of the demand for such advanced lifeboats came only from the Norwegian sea market which JNMA was not qualified for formerly. Now with the necessary licences, JNMA is able to unlock this lucrative Norwegian market. We would therefore expect JNMA to make strong contribution towards SBI starting from 2013 onwards.

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INVESTMENT MERITS Metamorphosis: Asia’s third turnkey drilling equipment solution provider. Leveraging on its Houston-based engineering house as well as its strong ties with Aker, SBI has recently become the first ever Asian turnkey drilling equipment solutions provider joining the ranks of Aker and NOV. Recognising the importance of cost savings in developing marginal fields, SBI provides a lower cost turnkey solution that includes engineering as well as construction of the derrick equipment set. Their niche is the smaller yet still lucrative tender rig market and SBI has proven its worth with its maiden contract win of US$30m. Robust industry outlook provide growth prospects for all products segments. Through a series of investments and acquisitions, SBI has also gained possession of multiple OEM product lines, ranging from lifeboats to offshore cranes. In view of the robust offshore oil & gas industry outlook, we believe that outlook for SBI’s products to remain bright given its clear focus in Asia where more than 80% of the MODUs are being built. With SBI’s strong sales network with customers including Sembcorp Marine, COSCO Shipyard, Daewoo, Hyundai and end customers consisting of global oil & gas giants, SBI’s earnings are poised to improve even further. 10-fold earning jump shows clear undervaluation. In view of the record orderbook of US$41m (5.8x of FY11 revenue) as well as its contract win momentum, we expect SBI’s earnings to surge 10-folds to US$3.2m this year and subsequently double again in FY13. Thus, based on its forward earnings, SBI looks attractive at the current trading price of S$0.21, as its P/E will fall drastically to 6.2x in FY12, and further to 2.8x in FY13. Figure 15: Earnings surge while P/E collapses
8.0 7.0 6.0 5.0 160.0 140.0 120.0 100.0

4.0 3.0 2.0 1.0
0.0

80.0 60.0 40.0 20.0
0.0

FY10

FY11 PATMI (US$m) - LHS

FY12f

FY13f P/E (x) - RHS

Source: Company data and DMG estimates

Healthy balance sheet to provide growth opportunities. As of FY11, SBI’s balances sheet remains healthy despite the numerous investments. With little borrowings and a net cash position, SBI has room to weather through any unexpected storms. SBI is also well positioned to gear up to capture the potentially significant growth opportunities that we see available. If successful, SBI’s position as Asia’s third turnkey drilling solutions provider will be solidified.

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INVESTMENT RISKS Being largely dependent on Aker. The bulk of the revenue which SBI is expected to generate is largely related to Aker’s drilling equipment. As such, SBI’s success is largely reliant upon Aker’s performance with the latter currently facing intense competition from NOV. Moreover, in the event that Aker chooses not to renew SBI’s representative agreement (SBI has an option to extend until late 2013), we expect SBI business to be adversely impacted. Management have recognised this critical risk and have successfully diversified SBI’s revenue streams with ownership in other offshore equipment companies such as those manufacturing lifeboats, high pressure pipes and fittings as well as offshore cranes and deck machinery. By providing turnkey equipment solutions in Asia, it has become one of Aker’s customers and it is supporting Aker with lower-cost contract manufacturing in Asia. Project execution risk. Currently, SBI has no record in the execution of turnkey drilling equipment project. However, as SBI enjoys good relationship with Aker and Aker understands this is SBI’s first turnkey project, Aker will be providing strong support. As such, the US$30m tender rig project will be a good testing ground for the group to demonstrate its abilities, opening up more doors in the future. Though there is a risk that the project may not adhere keenly to the proposed timeline, management is confident about its engineering capabilities as well as its experienced project management team, many of whom have come from major rigbuidling yards in Singapore. Industry demand tends to be cyclical. Being in the offshore oil & gas industry, demand for SBI’s products and services are generally related to the E&P spending and crude oil prices which ultimately depends on global economics. Though we expect E&P spending to remain resilient, any unexpected downturn in economy could impact SBI’s business. Low free-float result in poor liquidity. Currently, SBI’s founder Mr David Tan and chairman Mr Jonathan Hui owns more than 74% of the company. As such, free float is low at 26%, resulting in poor liquidity with average volume of only 23 lots in the past three months. However, for long-term investors, large management ownership could also indicate that the insiders are upbeat over the group’s prospects.

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EARNINGS FORECAST Achieved record orderbook. Boosted by the maiden turnkey drilling equipment contract win, SBI’s orderbook stood at a record high of US$41m as of end Feb 2012, which is equivalent to 5.8x of FY11 revenue. The US$30m turnkey project is expected to be carried out in the next 18 months and orders for other product categories are to be fulfilled and recognised within the next 3 – 12 months. Prospects remain bright across all products segments. Most notably, SBI is currently bidding for its second turnkey drilling equipment contract, a semi-submersible tender rig, in excess of US$40m. Given the robust E&P spending and the SBI’s strong network with the Asian shipyards, we opine that it is a matter of time before SBI secures its second turnkey contract. On the other hand, its UK branded (RBV) piping products had recently entered up the Korean market, while its JNMC lifeboats are en route into the lucrative Norwegian Sea. Last but not least, demand for its Houston-based subsidiary Sea Reef’s engineering services and offshore equipments remain robust, as it has been servicing some of the world-class US drilling company. As such, we expect order winning momentum to continue across all products segments. Figure 16: Orderbook breakdown as of end Feb 2012
Sea Reef , US$2m

Figure 17: Expected order wins (US$m)
90.0 80.0 70.0

RBV, US$5m

60.0 50.0

JNMC, US$4m

40.0 30.0 20.0

Turkey project, US$30m

10.0 0.0 2012f Turkey project Aker JNMC RBV 2013f Sea Reef

Source: Company data and DMG estimates

Net margin to improve; on track for record performance. Previously, SBI acted mainly as a distributor, booking only an agent’s fees as revenue. Hence, gross margin reached a high of 52.9% in FY11. However, as a result of high G&A expenses and new business start-up costs, net margins have remained at the low single digits. Figure 18: Margins
60% 50% 40%

Figure 19: Revenue & profits
80 70 60 50

30% 20% 10%

40 30

20
10
0% FY10 FY11 FY12F FY13F

0
FY10 FY11 Revenue FY12F Prof its FY13F

Gross margin

Net margin

Source: Company data and DMG estimates

Source: Company data and DMG estimates

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Moving on, since SBI has transformed to become a turnkey solution provider, we expect its gross margin to decrease as the group will book in the full revenue and cost for the equipment. However, net margin is forecasted to increase significantly to around 10% in the absences of further G&A expenses and other start-up costs. Furthermore, we expect business to pick up for the group’s RBV joint-venture as well as JNMC associate, contributing significantly to the bottom line. As such, we expect the group to achieve record revenue and profits from 2012 onwards. Working capital to be funded by account payable and borrowings. With the surge in revenue, working capital needs are expected to grow. However, SBI expects the majority of the project financing to come from the customer as well as credit lines provided by banks. Meanwhile, given its net cash position as of end FY11, SBI has room to gear up in funding its working capital needs as well as the maintenance capex needs which is approximately US$1.5m/year. Expecting more dividends. Despite minimum profitability for the past two years, SBI had still been paying out consistent dividends of 0.2S¢/share every year, equivalent to more than 80% of its earnings. In view of the 10-fold increase in profits, we forecast the group to distribute 25% of its earnings out as dividends, translating to 0.8S¢/share for FY12 and 1.9S¢/share for FY13. This implies dividend yield at 4% and 9% respectively. Figure 20: Working capital & borrowings (US$m)
70.0

Figure 21: EPS & DPS (S¢)
8.0 7.0
6.0 5.0

60.0
50.0 40.0 30.0 20.0

4.0 3.0
2.0 1.0
FY10 Inventory
Payables

10.0 0.0 FY11 FY12F Receivables
Short-term borrowings

FY13F

0.0 FY10 FY11 FY12F FY13F

EPS
Source: Company and DMG estimates

DPS

Source: Company and DMG estimates

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VALUATION SBI is the only qualified Asian company that is able to bid together with NOV and Aker in bidding for the smaller yet lucrative tender rig turnkey drilling equipment package. While it is not feasible to compare SBI directly with the only two world-class drilling equipment providers, we choose to use the broader offshore oil & gas service peers that are listed in Singapore in valuing the company. Trading below peer average, initiating coverage with a BUY. At the current price of S$0.21, SBI is now trading at only 6.2x FY12F P/E and 2.8x FY13F P/E based on our earnings forecasts. Given its superior ROE and dividend yields, we believe SBI should trade above its peer’s average of 9.9x, translating to a TP of S$0.34 (61% upside).

Figure 22: Peer financial comparison table
Company Name Market FYE Cap as of (S$m) Net Margin Curr FY Nex FY ROE Curr FY Nex FY P/E (x) Curr FY Nex FY Dividend Yield Curr FY 4.0% 0.0% 4.9% 2.8% 0.0% 0.0% 4.4% 8.7% 3.0%

SBI OFFSHORE LTD KREUZ HOLDINGS NORDIC GROUP HEATEC JIETONG IEV HOLDINGS LTD FALCON ENERGY GR DYNA-MAC HOL LTD TECHNICS OIL & Industrial Average (Ex SLA)
Source: Bloomberg and DMG estimates

25.6 186.6 41.2 13.1 129.9 223.9 405.1 204.0

Dec Dec Dec Dec Dec Dec May Sep

9.9% 20.6% 8.4% 2.5% 15.1% 19.9% 12.8% 13.7% 13.3%

10.60% 21.2% 9.2% Na 11.2% 35.0% 12.6% 15.1% 17.4%

27.4% 22.1% 13.5% 4.2% 39.9% 9.8% 16.5% 37.6% 20.5%

43.4% 19.3% 14.6% Na 36.6% 15.2% 16.6% 33.7% 22.7%

6.2 4.5 7.4 12.0 6.0 12.2 18.8 8.7 9.9

2.8 3.9 6.1 Na 5.8 Na 16.7 8.3 8.2

Figure 23: Historical forward P/E valuation
200 180 160 140 120 100 80 60 40 20 0

Forward P/E
Source: Company data and DMG estimates

Average

+1 S.D.

-1 S.D.

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FINANCIAL TABLES

Figure 24: Profit and loss FYE 31 Dec (US$ m) FY09 Revenue 12.2 Cost of sales (8.0) Gross profit 4.2 General & Admin expenses (1.9) Other income 0.2 Share of profit of associates / JVs 0.2 EBIT 2.8 Interest expenses (0.4) PBT 2.4 income tax (0.4) MI (0.0) PATMI 1.9 Source: Company data and DMG estimates Figure 25: Balance sheet FYE 31 Dec (US$ m) FY09 Total Assets 12.4 Fixed assets 1.2 Other long-term assets 2.0 Inventory 0.2 Receivables 5.5 Other short-term assets 0.0 Cash and short-term investment 3.5 Total Liabilities 5.5 Short term borrowings 1.7 Payables 3.1 Other short-term liabilities 0.5 Long-term liabilities 0.0 Shareholder's funds 6.8 Minorities 0.1 Source: Company data and DMG estimates Figure 26: Cash flow FYE 31 Dec (US$ m) FY09 PBT 2.4 Depreciation & amortization 0.3 Change in working capital 0.5 Operating cashflow 2.5 Capex & acquisitions (0.6) Free cashflow 2.0 New borrowings (0.0) Share issuance 3.6 Dividends paid (1.0) Net cashflow 2.2 Source: Company data and DMG estimates FY10 0.2 0.3 3.2 2.9 (6.2) (3.3) (0.3) 2.3 (0.3) (1.8) FY11 0.5 0.4 (0.4) (0.3) (0.7) (1.0) (0.3) 0.0 (0.2) (0.3) 2012F 3.7 0.5 (3.2) (0.4) (1.5) (1.9) 2.0 0.0 (1.0) (1.0) 2013F 8.4 0.5 (3.6) 2.6 (1.5) 1.1 1.5 0.0 (2.3) 0.3 FY10 14.6 5.7 3.6 0.2 3.0 0.2 1.9 5.4 1.5 3.8 0.0 0.0 9.3 0.1 FY11 13.1 5.3 4.2 0.4 1.7 0.0 1.6 3.5 1.2 2.3 0.1 0.0 9.5 0.1 2012F 27.0 6.3 5.3 5.4 9.6 0.0 0.4 15.3 3.2 12.0 0.1 0.0 11.6 0.1 2013F 45.7 7.3 6.8 10.9 20.0 0.0 0.6 29.2 4.7 24.4 0.1 0.0 16.4 0.1 FY10 9.3 (5.9) 3.4 (3.5) 0.2 0.2 0.3 (0.1) 0.2 (0.1) 0.0 0.2 FY11 7.1 (3.4) 3.8 (3.8) 0.4 0.2 0.6 (0.1) 0.5 (0.2) (0.0) 0.3 2012F 32.0 (26.8) 5.3 (2.5) 0.0 1.2 4.0 (0.2) 3.7 (0.6) 0.0 3.2 2013F 66.8 (54.3) 12.5 (5.3) 0.0 1.5 8.7 (0.3) 8.4 (1.3) 0.0 7.1

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APPENDIX 1: DIRECTORS’ PROFILE Name Mr Jonathan Hui Position Executive Chairman and CEO Background    Appointed since March 2008, responsible for the daily overall management Possessed 30 years of experience in the financial and business sector Pror to joining SBI, Mr Hui co-founded the Swanlin Asia Group, a venture capital firm, in 2005 and was responsible for business development and finance for business development and finance He was also a Director at Aviation and Electronics Support Pte. Ltd. Singapore (2001-2003) He was an audit senior with Arthur Andersen, United Kingdom (1980-1983), senior manager with Arthur Andersen, Singapore (1983-1989), VicePresident of Merrill Lynch (1990-1994) and Executive Research Director of UBS Securities in 1994 Founded SBI in 1994 Since 1 July 1997. He is responsible for securing agency contracts from Aker MH of Norway to market its range of drilling equipment in Asia, including Singapore Prior to establish the company, Mr. Tan was a manager in the rig-building commercial department of Keppel FELS Limited and was involved in cost estimations and marketing of rig-building services Subsequently, he was the manager of Sea Scan International where he was involved in the procurement of equipment and accessories for the ship building and/or ship repairing activities of Keppel Group He was also the business manager of Aker MH for the China market from 2007 to 2008 From 2007 to 2009, Ms. Chen was the group’s Executive Director and was responsible for operational, human resources and finance matters Held the position of SBI’s Lead Independent Director since September 2009 Mr Giang is currently the Executive Director of the Singapore Prior to that, he had been appointed as the Finance Director and General Manager of Dowty Aerospace, Executive Director and Regional Financial Controller of Golden Polindo Industries Group He was also the Chief Financial Officer of the Singapore Island Country Club, Innovalues Limited and Sunmoon Food Company Limited Graduated with a Bachelor of Administration degree with great distinction from University of Regina, Canada

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Mr David Tan

Executive Director

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Ms Chen Jiayu

Alternate Director to David Tan Lead Independent Director

Mr Giang Sovann

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 

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Mr Chan Lai Thong

Independent Director

 

Held the position of SBI’s Independent Director since September 2009 Mr Chan has about 30 years of international marketing and business development experience in several industries, particularly in the offshore and marine industry He is currently a Director of several private companiesincluding Weatherock China Ltd, Chongqing Panxin Industry Company Ltd, and Sichuan Bangkok Investment Prior to that, he was with the Keppel Group and was a Group General Manager in both Keppel Corporation Ltd and Keppel Offshore & Marine Ltd and help to develop the markets in Southeast Asia, Middle East, Bulgaria, Azerbaijan and Kazakhstan Graduated from the National University of Singapore with a Bachelor of Science (Honours) in 1980 Appointed since September 2009 Mr. Wong is also the Group Chief Operating Officer of the Centurion Group which primarily engage in fund management, private equity investments and property development and investments He is also a director of various public listed companies in Singapore Prior to this, he was a partner in a local advocates and solicitors firm with more than 18 years of experience in legal practice, mainly in the areas of corporate law and corporate finance mergers and acquisitions and venture capital.Mr. Wong holds a Bachelor of Laws (Honours) degree from the National University of Singapore

Mr Wong Kok Hoe

Independent Director

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 

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APPENDIX 2: PRODUCT CATALOGUE Aker Solution’s Drilling Equipment

Source: Aker Solution

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JNMA’s Lifeboat
Free Fall Lifeboat

Totally Enclosed Lifeboat

Partially Enclosed Lifeboat

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Sea Reef’s Offshore Equipment
Cranes

Deck / Handling Equipment

Winches and Hoists

RBV Energy
API Pipes, Fittings, Manifolds

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DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited.

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