SBI Offshore A Great Leap Forward As Earnings Multiply

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$0.34
a leading turnkey drilling equipment Asias leading turnkey solution equipment drilling provider with a portfolio of OEM offshore equipment product lines. solution provider
Stock Profile/Statistics Bloomberg Ticker STI Issued Share Capital (m) Market Capitalisation (S$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 Asias 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: Asias 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 SBIs 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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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: SBIs 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 SBIs 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 Solutions drilling equipment division, which is the worlds 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 worlds second largest drilling equipment and systems provider, with National Oilwell Varco (NOV) being the largest, generating US$14.6 billion (S$18.2 billion).
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%
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 groups 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
Derrick Set Mud Processing equipment Cement system Lifting equipment Power system Blowout preventer Instrumentation Drillstring handling Substructures
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), Chinas second largest land-rig builder, which specialises in contract manufacturing and fabrication services for offshore and marine equipment companies.. Benefiting from Honghuas enormous production facilities as well as SBIs 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: SBIs production facilities
Jiangyin Neptune Marine Appliance Lifeboat Facility

Jiangyin Neptune Lifeboat/Davit Facility
Jiangyin SBI Offshore Equipment Facility
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 Akers 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: SBIs 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
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$135m from COSCO. This is on top of the three tender barges that are under construction and another semi-sub tender rig building in Keppel FELS. About Tender Rig As opposed to platform rig, facilities required to support the drilling operation such as power, living quarters, etc, are located on the tender, while actual drilling equipment such as the derrick, topdrive, blowout preventer, etc are installed on the platform. As such, the design load and required deck area of using a tender rig is only about one quarter of that of a platform rig of comparable capacity. Hence, the cost of constructing a tender rig is significantly lower than that of other rigs. There are two types of tender rig, with the barge type fit for shallow water, and the more powerful semi-submersible type suitable for deep water.
Figure 11: Cost comparison between tender rig and other MODUs Drillship or Semisub Semisub Tender rig 170,000 200 Jack-up Tender barge
Average day rates (US$/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. SBIs 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.
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 Norsafes, 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.
INVESTMENT MERITS Metamorphosis: Asias 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 SBIs products to remain bright given its clear focus in Asia where more than 80% of the MODUs are being built. With SBIs strong sales network with customers including Sembcorp Marine, COSCO Shipyard, Daewoo, Hyundai and end customers consisting of global oil & gas giants, SBIs 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 SBIs 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, SBIs 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, SBIs position as Asias third turnkey drilling solutions provider will be solidified.
10
INVESTMENT RISKS Being largely dependent on Aker. The bulk of the revenue which SBI is expected to generate is largely related to Akers drilling equipment. As such, SBIs success is largely reliant upon Akers performance with the latter currently facing intense competition from NOV. Moreover, in the event that Aker chooses not to renew SBIs 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 SBIs 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 Akers 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 SBIs 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 SBIs 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 SBIs business. Low free-float result in poor liquidity. Currently, SBIs 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 groups prospects.
11
EARNINGS FORECAST Achieved record orderbook. Boosted by the maiden turnkey drilling equipment contract win, SBIs 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 SBIs 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 Reefs 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
Net margin to improve; on track for record performance. Previously, SBI acted mainly as a distributor, booking only an agents 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
12
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 groups 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
13
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 peers 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
Average
+1 S.D.
-1 S.D.
14
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
15
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 groups Executive Director and was responsible for operational, human resources and finance matters Held the position of SBIs 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
Mr David Tan
Executive Director
Ms Chen Jiayu
Alternate Director to David Tan Lead Independent Director
Mr Giang Sovann
16
Mr Chan Lai Thong
Independent Director
Held the position of SBIs 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
17
APPENDIX 2: PRODUCT CATALOGUE Aker Solutions Drilling Equipment
Source: Aker Solution
18
JNMAs Lifeboat
Free Fall Lifeboat
Totally Enclosed Lifeboat
Partially Enclosed Lifeboat
19
Sea Reefs Offshore Equipment

Cranes
Deck / Handling Equipment
Winches and Hoists
RBV Energy
API Pipes, Fittings, Manifolds
20
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.
DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. As of the day before 25 April 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 25 April 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: Analyst Company a) Nil b) Nil DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur
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SBI Offshore A Great Leap Forward As Earnings Multiply

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SBI Offshore A Great Leap Forward As Earnings Multiply

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April 25, 2012

SINGAPORE EQUITY Investment Research

Private Circulation Only

BUY Price Previous Target

A great leap forward as earnings multiply

6-month Share Price Performance

Source: Company data and DMG Estimates

OSK Research DMG Research OSK

Figure 1: SBIs group structure

OSK Research DMG Research OSK

Figure 2: Product lines

Figure 3: 2011 revenue geographical breakdown

Jiangyin Neptune Marine Appliance (JNMA)

Singapore 32% Europe 46%

RBV Energy Singapore

API Pipe/ Fitting / Manifold

Sea Reef Offshore (Sea Reef)

Deck Machinery / Offshore Load Handling System/ Offshore Crane

Southeast Asia (ExSing) 14%

Source: Company data

OSK Research DMG Research OSK

Jiangyin Neptune Marine Appliance Lifeboat Facility

Jiangyin Neptune Lifeboat/Davit Facility

Jiangyin SBI Offshore Equipment Facility

OSK Research DMG Research OSK

SBI's market (ASEANChina), 83

China, 31 South Korea, 52

Source: Clarkson, as of 1st Mar 2012

OSK Research DMG Research OSK

80 40 0 2009 2010 2011 New f ield discoveries

20 10 0 2009 2010 2011 New f ield discoveries

OSK Research DMG Research OSK

Average day rates (US$/day) Average construction cost (US$m)

Philippines Malaysia Indonesia India China

OSK Research DMG Research OSK

Figure 13: World offshore fleet (unit)

Figure 14: Offshore lifeboat volume market share

JNMA 17% Norsaf e 45%

Of f shore f ixed production structures

OSK Research DMG Research OSK

4.0 3.0 2.0 1.0

80.0 60.0 40.0 20.0

FY11 PATMI (US$m) - LHS

FY13f P/E (x) - RHS

Source: Company data and DMG estimates

OSK Research DMG Research OSK

OSK Research DMG Research OSK

Figure 17: Expected order wins (US$m)

40.0 30.0 20.0

Turkey project, US$30m

Source: Company data and DMG estimates

Figure 19: Revenue & profits

30% 20% 10%

Source: Company data and DMG estimates

Source: Company data and DMG estimates

OSK Research DMG Research OSK

Figure 21: EPS & DPS (S)

10.0 0.0 FY11 FY12F Receivables

0.0 FY10 FY11 FY12F FY13F

Source: Company and DMG estimates

OSK Research DMG Research OSK

Figure 22: Peer financial comparison table