oil and gas good performance to continue in 2014

8/13/2019 Oil and Gas Good Performance to Continue in 2014

1/29

OVERWEIGHT

(maintain)

Analysts

Low Pei Han, CFA (Lead) +65 6531 9813

[email protected]

Wong Teck Ching, Andy +65 6531 9817

[email protected]

Relative totalreturn 1m 3m 12m

Sector (%) 2 9 12STI-adjusted (%) 3 4 3

Price performance chart

2700

2900

3100

3300

3500

3700

643

686

729

772

814

857

Nov-12 Feb-13 May-13 Aug-13 Nov-13FSTOG FSSTI

Sector Index Level Market Index Level

`

Sources: Bloomberg, OIR estimates

Industry-relative metrics

Company PriceFair

ValueRating

Keppel Corp 11.31 12.87 BUY

Sembcorp Marine 4.44 5.68 BUY

Ezion Holdings 2.10 2.57 BUY

Nam Cheong 0.29 0.37 BUY

Triyards 0.675 0.88 BUY

Dyna-Mac 0.405 0.47 BUY

Yangzijiang 1.165 1.22 HOLD

VARD 0.80 0.84 HOLD

KS Energy 0.50 0.50 HOLD

Ezra Holdings 1.315 0.99 SELL

COSCO Corp (S) 0.735 0.61 SELL

Bumi Armada 3.97Underrev

Underrev

Index mostly in-line with market; among top three best

performing sub-indices

The FTSE Oil and Gas index has performed more or less in-line with the

broader market this year. Still, it is among the top three best-performing FTSE sub-indices YTD, along with the FTSE

Telecommunications and FTSE Maritime indices. On the other hand,

price performances of individual stocks have differed greatly, with the

key outperformers being Kreuz Holdings (+95% YTD) and Ezion

Holdings (+45% YTD) in the Offshore & Marine space.

Positive on the rig building sector and certain OSV segments

Stepping into 2014, we continue to advocate a focused stock-picking

strategy, overweighting companies that are operating in sub-sectors

with more favourable demand-supply dynamics, and those with strong

balance sheets and order books. The local rigbuilders are expected to

continue securing orders at a pace that will at least match this years,

while the offshore support vessel sub-sector should also see continued

recovery as the market situation gradually tilts in favour of vessel

owners the Indonesian and Malaysian OSV sectors are especially

looking relatively promising. Meanwhile, subsea tendering activity

remains firm.

Solid long-term fundamentals; near term driven by macro

events

We believe that the offshore sector has strong long-term fundamentals

as countries have an interest in fulfilling as much domestic demand as

possible in order to boost energy security. Investors should be mindful,

however, that macro events remain a key driver of the broader sector

in the near term. Going into 2014, we remainOVERWEIGHTon the oil

and gas sector, as we expect that the favourable oil price environment

will continue to be conducive for capital expenditure. Our preferredpicks are Keppel Corporation[BUY, FV: S$12.87], Sembcorp

Marine[BUY, FV: S$5.68], Ezion Holdings[BUY, FV: S$2.57] and

Nam Cheong Ltd[BUY, FV: S$0.37].

GOOD PERFORMANCE TO CONTINUEIN 2014 Among top three best performing FTSE indices Stick to focused stock-picking Solid long-term fundamentals

OIL & GAS | OVERWEIGHT2 Dec 2013

Sector Update

Asia Pacific Equity ResearchSingapore | Oil and GasSector

MCI(P) 007/06/2013Please refer to important disclosures at the back of this document.


2/29

OCBC Investment ResearchSingapore Equities

2

TABLE OF CONTENTS

SECTION A. EVALUATION OF PAST PERFORMANCE

SECTION B. TRENDS AND OUTLOOK

I) Oil marketII) Offshore Drilling RigsIII) Offshore Construction and SubseaIV) Offshore Support Vessels

SECTION C. SECTOR COVERAGE

SECTION D. PREFERRED PICKS

SECTION E. DISCLAIMER


3/29


3

SECTION A. EVALUATION OF PAST PERFORMANCE

What transpired in 2013?

Mostly in-line with market; divergence in 2Q13

In our year-end report last year, we expressed our optimism that the Oiland Gas sector would outperform in the early part of 2013. Indeed, theFTSE Oil and Gas index delivered a positive performance against the STIin 1Q13, but it underperformed during the mid Mar to May period wheninvestors rotated to lower beta counters and yield plays such as REITs.

Oil and gas counters outperformed the market when investors switchedout from yield plays with increased market chatter of rising interest rates,but mostly in-line and disappointing earnings results from certaincompanies in the sector resulted in a somewhat neutral performance ofthe sector vis--vis the broader market since then.

Among top three best performing sub-indices to-date

Still, it is among the top three best-performing FTSE sub-indices YTD,along with the FTSE Telecommunications and FTSE Maritime indices.

Exhibit A-1: FTSE Oil & Gas against the STI and Brent oil

90

92

94

96

98

100

102

104

106

108

110

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2013

Base

0

20

40

60

80

100

120

140

US$/bb

l

FSSTI Index (rebase d)

FTSE Oil & Gas (rebased)

Brent crude (US$/bbl)

-10

-5

0

5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct

2013

Baseunits

Spread (FTSE Oil & Gas - FSSTI)

Source: Bloomberg, OIR


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4

Exhibit A-2: FTSE Oil and Gas and the STI in the past five years

-50

0

50

100

150

200

250

Jan09

Apr09

Jul09

Oct09

Jan10

Apr10

Jul10

Oct10

Jan11

Apr11

Jul11

Oct11

Jan12

Apr12

Jul12

Oct12

Jan13

Apr13

Jul13

Oct13

STI

FTSE Oil and Gas

Source: Bloomberg, OIRDespite a broadly in-line performance against the general market so far,the price performance of individual stocks have differed greatly, with thekey outperformers being Kreuz Holdings (+95% YTD) and Ezion Holdings(+45% YTD, after adjusting for bonus issue) in the Offshore & Marinespace. Under the Exploration and Production (E&P) sub-sector, MirachEnergy was the star performer, having risen to S$0.179 (152% rise)from a low base of less than ten cents. Meanwhile, underperformersinclude VARD Holdings at -38%, Otto Marine at -32%, and KS Energy at-26%.

Exhibit A-3: Price performance of sector stocks

StockPrice performance

YTD (%)

Offshore & Marine

KREUZ HOLDINGS 95

EZION HOLDINGS 45

YANGZIJIANG SHIP 22

EZRA HOLDINGS 16

KEPPEL CORP LTD 6

SWIBER HOLDINGS 5

JAYA HLDGS LTD 2

SEMBCORP INDUS 1

MARCO POLO MARINE 0

ASL MARINE HLDGS -2

SEMBCORP MARINE -3

CH OFFSHORE LTD -12

DYNA-MAC HOL LTD -17

COSCO CORP (S) -19

KS ENERGY -26

OTTO MARINE -32

VARD HOLDINGS -38

E&P Companies

KRIS ENERGY NA

MIRACH ENERGY 152

RAMBA ENERGY LTD 12

RH PETROGAS LTD 11

INTERRA RESOURCES -3 Note: Ezion- adjusted for bonus issueSource: Bloomberg, OIR


5/29


5

Exhibit A-4: Large yards Exhibit A-5: Small to mid sized yards

70

80

90

100

110

120

130

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Base=100

2013

Keppel Corp

Sembcorp Marine

COSCO Corp

Yangzijiang Shipbuilding

50

60

70

80

90

100

110

120


Base=100

2013

VARD

Nam Cheong

ASL Marine

Otto Marine

Marco Polo Marine

Exhibit A-6: Offshore service providers Exhibit A-7: E&P companies

60

70

80

90

100

110

120

130

140

150

160


2013

Swiber Holdings

Ezra Holdings

Ezion Holdings

CH Offshore

Jaya Holdings

0

100

200

300

400

500

600

700

800

50

75

100

125

150

175

200


Base=100(MirachEnergy)

Base=100

2013

KrisEnergy

RH Petrogas

Interra Resources

Ramba Energy

Mirach Energy (RHS)

Source: Bloomberg, OIR Source: Bloomberg, OIR

More companies investing in newbuild rigs

With the strong industry outlook for high spec rigs, we saw morecompanies jump onto the jack-up ownership bandwagon this year e.g.Falcon Energy, KS Energy, Swissco Holdings and Viking Offshore andMarine, amongst the listed companies. Coupled with attractive paymentterms offered by Chinese yards, several of the rigs were ordered fromyards like Cosco Corp and Jiangsu Rongsheng. Some of the units havebeen on-sold to other buyers after prices rose.

More interest in the E&P segment

This year also saw greater investor interest in the exploration andproduction (E&P) sector with the IPOs of KrisEnergy and RexInternational, benefitting counters such as RH Petrogas, Mirach Energy,Ramba Energy and Interra Resources. It is imperative that these

companies demonstrate earnings sustainability after the initial ramp-upphase.

and recovering OSV sector tooThe market also saw renewed interest in the offshore support vesselsector with the signs of a recovering industry, as well as the IPO ofPacific Radiance and the expected IPO of PACC Offshore Services (POSH),which should be launched by 1Q14. Do note, however, that the outlookfor different OSV companies can differ greatly, depending on the assetsthey own as well as the geographies where they deploy them.


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6

SECTION B. TRENDS AND OUTLOOK

OIL MARKET

Significant rise in WTI prices, but only catching up with Brent

In recent months, WTI prices have recovered significantly, increasingfrom about US$87/bbl in mid Apr to US$106/bbl in late Aug. However,this is only a convergence in the Brent-WTI spread which becameapparent starting in early 2011. As seen from Exhibit B-1, the spread hasdecreased to less than US$5/bbl in recent weeks. Recall that the spreadfirst appeared due to logistical issues that led to a supply glut of WTIcrude in Cushing, Oklahoma, depressing WTI prices. With improvedpipeline networks, the use of rail transport and higher demand from USrefiners, Cushing inventories dropped from 50 mbbl in early Jan 2013 to38 mbbl in early Aug (Exhibit B-2).

In more recent weeks, the spread has increased again, mainly due to 1)supply disruptions in the Middle East, 2) lower demand from US refiners

and 3) strong production from Bakken to Cushing. This spread isexpected to narrow once the US refineries come out of seasonalmaintenance.

Exhibit B-1: WTI and Brent crude prices

80

85

90

95

100

105

110

115

120

Sep12

Oct12

Nov12

Dec12

Jan13

Feb13

Mar13

Apr13

May13

Jun13

Jul13

Aug13

Sep13

Oct13

Nov13

US

$/bbl

Crude oil- WTI Cushing US$/bbl

Crude oil- Brent Dated US$/bbl

Source: EIA, Bloomberg


7/29


7

Exhibit B-2: Cushing crude oil inventories

Source: Bloomberg, OIR

Impact mainly felt by US companiesThat said, the rise in WTI prices has had a positive impact on USdomestic oil producers, while the profits from transporting oil by rail willshrink, slowing the demand for train cargoes and affecting the shareprices of related companies. US refiners in the Midwest are also losing anadvantage they have enjoyed for about three years prior to the priceconvergence, refiners margins have benefited from the purchase oflowly-priced WTI crude and sale of refined products that are linked to themore expensive Brent.

The offshore companies that we cover and speak to have been quoting

the oil price threshold level of US$70-75/bbl for offshore deepwatercapex based on Brent prices rather than WTI prices, hence there shouldnot be an impact on corresponding capex plans with the change in WTIprices.

Ample supplies, but still elevated enough to support capexAs global growth continues to underpin crude oil demand in the longerterm while geopolitical factors such as Egypts civil friction and tension inSyria may lead to price spikes, oil prices are likely to remain sufficientlyelevated (above offshore deepwater breakeven threshold of ~US$70-75/bbl) to spur capital expenditure in the sector. Healthy oil productionfrom both OPEC and the US is expected to result in ample supplies OCBC Treasury Research and Strategy is expecting Brent and WTI to endthe year at around US$100/bbl and US$95/bbl, respectively.

Exhibit B-3: OCBCs oil price forecasts

(US$/bbl) 1Q13 2Q13 3Q13 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F

WTI 94.4 94.2 102.5 95.0 93.8 92.5 91.3 90.0

Brent 112.6 103.4 106.3 100.0 97.5 95.0 92.5 90.0 Source: OCBC Treasury Research and Strategy


8/29


8

Exhibit B-4: Healthy production levels fromOPEC

Exhibit B-5: US oil production rose aboveimport levels this year

Source: OCBC Treasury Research & Strategy Source: OCBC Treasury Research & Strategy

Strong long-term fundamentals; energy security is keyThe global energy map is changing, with the resurgence of oil and gasproduction in the US, as well as a retreat from nuclear power in somecountries. For the offshore sector at least, we believe it has strong long-

term fundamentals as countries have an interest in fulfilling as muchdomestic demand as possible in order to boost energy security. In Asia,this does not just apply to China and India, but also to places such asMalaysia and Indonesia which continue to face production declines ifinvestments in the sector are not increased. Going into 2014, we remainOVERWEIGHTon the oil and gas sector, as we expect that the favourableoil price environment will continue to be conducive for capital expenditurein the sector. However, investors are well-advised to note that differentstages of the oil & gas value chain, as well as their sub-segments,experience different demand and supply dynamics:


9/29


9

OFFSHORE DRILLING RIGS

Rig demand remains strongGlobal economic issues have not meaningfully impacted demand foroffshore drilling services, as rig demand remains strong in all major globalmarkets and across most rig types. This is evident by the high levels ofmarketed rigs under contract, which has led to sustainedfavourable day rates in the ultra-deepwater segment and increasing ratesin the deepwater and jack-up segments. Certainly, there is variability inrates depending on geographical location, rig age and specifications, withimprovements in utilisation levels and day rates mostly in the high spec rigsegments.

Exhibit B-6: Contracted rig count

0

50

100

150

200

250

300

350

400

450

Jul00

Jul01

Jul02

Jul03

Jul04

Jul05

Jul06

Jul07

Jul08

Jul09

Jul10

Jul11

Jul12

Jul13

Units

Jackups Semi-subs Drillships Platform rigs Source: Rigzone, Bloomberg, OIR

Capacity constraints in the equipment supply chainThe high level of drilling activity, together with the backlog of rigs underconstruction, is creating capacity constraints in the global offshore rigequipment supply chain. As a result, equipment delivery lead times arebeing extended and equipment prices are increasing as well. Playerssuch as Atwood are expecting that this would lead to delayed deliveries.


10/29


10

Exhibit B-7: Contracted rigs and day rates for various rigs now and then

Rig typeContracted

rigs

Total

fleet

Average

day rate (US$)Rig type

Contracted

rigs

Total

fleet

Average

day rate (US$)

Drillship


11/29


11

Threat of the Chinese yardsInvestors have been understandably concerned about the threat ofChinese yards in the offshore space, given that the Chinese governmenthas mentioned that ship and rig building will be one of the majorindustrial pillars for the country going forward. Indeed, Chinese yardshave been successful in securing a high number of jack-up rigs YTD, andwe believe that this year will be a significant milestone in the history ofChinese rigbuilding.

Credit crunch in China = less free money?However, we note that many of the contracts that Chinese yards havewon so far are mostly from newcomers in the offshore industry, includingspeculators who sell the rigs later for a profit. Very favourable paymentterms have been extended to these customers e.g. Prospector Offshoresdownpayment was only 6.5% with Shanghai Waigaoqiao Shipbuilding(SWS). As China struggles with a credit crunch, free money will becomescarcer and we believe that we would see the demise of more secondand third tier shipbuilding and rigbuilding firms.

Monitor the buyers of rigs from Chinese yardsOne of the few serious contenders in China today is Dalian Shipbuilding,which has won orders from Norwegian company Seadrill, the only

established player that has ordered from a Chinese yard to date. TheNorwegians have always been a less risk-averse and adventurousgroup of rig investors recall that it was also a group of entrepreneurialNorwegians that supported Singapores rigbuilding in the earlier days. Tillwe see more established players ordering from the Chinese yards, we donot think that Keppel Corps and Sembcorp Marines share in high-specrigs will be eroded away just yet.

Exhibit B-11: KEPs and SMMs new order wins since FY05

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 3Q13

S$b

KEP

SMM

Source: Companies, OIR


12/29


12

OFFSHORE CONSTRUCTION & SUBSEA

Offshore construction refers to the installation and commissioning ofoffshore infrastructure used in the production of oil and gas. A widevariety of offshore construction vessels (OCVs) are used in this stage,including heavy-lift vessels, derrick-lay vessels, pipe-lay units, and multi-purpose vessels for subsea umbilicals, risers and flexibles installation(SURF). Self-elevating units such as those constructed by Triyards andowned by Ezion Holdings are also gaining in popularity in Asia Pacific.Swiber Holdings and Ezra Holdings have a fleet of OCVs as well.

Companies operating in the subsea industry can generally be classifiedas operating in one or both segments: 1) larger jobs such as engineering,procurement and construction, and 2) relatively smaller ones such asinspection, repair and maintenance (IRM). Delays in the award of certainbig jobs this year have resulted in some bumpiness in earnings for theformer, while those that have a steady baseload of IRM work have seenmore stable recurring earnings.

Meanwhile project tendering activity has been buoyant, and vessels oncharter have generally enjoyed healthy day rates.

Outlook for high-end vessels remains brightWe anticipate the OCV fleet to continue to grow on long-termexpectations of investments in the offshore E&P sector. According toCleaves, the supply of high-end construction vessels is expected totighten towards 2014-2015, resulting in a noticeable increase innewbuilding activity. There is also a trend that new OCVs being orderedhave high specs for multi-role operations, making them versatile forwork in various segments and regions.

Exhibit B-12: Newbuild subsea vessels (global)

2013 2014 2015 2016 Total

CLV Cable Lay Vessel 1 2 0 0 3

CON Construction Vessel 5 16 6 1 28

DSV Diving Support Vessel 5 0 2 0 7Heavylift/

Pipelay Heavylift/Pipelay Vessel 4 5 1 0 10

LAYSV Pipelay Vessel 2 8 1 0 11

LCV Light Construction Vessel 3 4 2 1 10

MPSV 6 10 2 2 20

MSV 8 13 2 0 23

ROV ROV Support Vessel 0 1 0 0 1

Total 34 59 16 4 113

Vessel type

Multipurpose

Support Vessel

Source: Fearnley Offshore, Jun 2013


13/29


13

Exhibit B-13: Outlook for certain regions

Source: Technip


14/29


14

OFFSHORE SUPPORT VESSELS

AHTS is the predominant vessel in the regionOffshore Support Vessels (OSVs) are utilised in every part of the offshorevalue chain (Exhibit B-12) and the grey boxes illustrate the various kindsof vessels that are commonly used for each stage of the offshore fieldlifecycle. As shown, there is a wide range of OSVs, but in the Asian market,the more relevant vessel is still the anchor-handling tug supply (AHTS)vessel, which accounts for about 90% of the total fleet in the region.Platform supply vessels (PSV) make up about 10%, although interest inthis type of vessel has been growing.

Exhibit B-14: Uses of OSVs in different parts of the offshore value chain

Source: RS Platou

Concern of future overbuilding lingersThe concern, however, of future overbuilding remains. The increasingnumber of traditional shipowners who used to focus on bulk carriers andcontainerships and now looking to diversify into the offshore space maylead to more orders of offshore newbuilds. If demand does not keep inpace with the supply down the road, this would lead to lower utilisationand day rates. As of Sep 2013, there are about 436 additional AHTS andPSVs (~14% of the global fleet) under construction (Exhibit B-13). Theglobal fleet is estimated at about 2,997 vessels, including ~750 vessels(25%) that are at least 25 years old.


15/29


15

Exhibit B-15: AHTS and PSVs built per year

Source: IHS Petrodata, Tidewater

Exhibit B-16: OSV newbuildings by country

Source: RS Platou

Positive on OSV market, owners of newer fleets preferredStill, we hold a positive view of the OSV market, as the growth of theoffshore drilling market and increasing base of production infrastructureunderpins potential increases in OSV newbuilds. Meanwhile, much like theoffshore drilling market, there has been a progressive trend towardsbifurcation in the OSV fleet as day rates and utilisation levels of newbuildand older vessels have diverged over the past few years.

Exhibit B-17: Demand drivers for the offshore support vessel market

Source: Pareto Research

0

50

100

150

200

250

300

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

No.ofvesselsbuilt(AHTS,

PSV)

Vessels > 25 yrs old


16/29


16

OSV to rig ratio has been fallingAccording to IHS Petrodata, the OSV to rig ratio has fallen from 4.83 inJan 2011 to 4.20 in Sep 2013 in 2013 after rising for the past few years.This change, reflects a tilt in market balance that favours vessel owners.

Exhibit B-18: OSV to rig ratio

Jul 2008Peak

Jan 2011Trough

Aug 2012 Jan 2013 Sep 2013

Working Rigs 603 538 649 673 713

Rigs under construction 186 118 188 192 222

OSV global fleet 2,033 2,599 2,788 2,873 2,997

OSVs under construction 736 367 428 426 436

OSV/rig ratio 3.37 4.83 4.30 4.27 4.20 Source: IHS Petrodata

Exhibit B-19: No. of working rigs globally

400

253

0

50

100

150

200

250

300

350

400

450

Jan

04

Jul04

Jan

05

Jul05

Jan

06

Jul06

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Jan

10

Jul10

Jan

11

Jul11

Jan

12

Jul12

Jan

13

Jul13

No.ofworkingrigs

Jack-ups

Floaters

Source: Tidewater

SE Asia OSV prospects are bright

Within SE Asia, Malaysia and Indonesia have the greatest forecastedinvestment in the oil and gas industry, due to increasing urgency ofstemming production declines. Both countries are developing shallowwater plays, while also moving to deeper waters. Against such abackdrop, the current OSV fleet in these two countries is not sufficient inmeeting expected demand due to the old age of the current fleet andcharterers increasing demanding requirements, as well as the push foryounger and more eco-friendly vessels by regulators. About 12% of theOSV fleet in SE Asia (400 AHTS and PSVs, 800 other OSVs such as

Construction Support Vessels and Diving Support Vessels, crewboats etc)are past their useful economic life (>30 years), and about 21% arebetween 20-30 years old.

The cabotage laws of Malaysia and Indonesia have also meant that onlylocally-flagged vessels can operate in the respective countries, buoyingthe charter rates of such vessels and benefiting companies with exposureto these countries. These include Jaya Holdings and Marco Polo Marine.Nam Cheong Ltd has strong exposure to the OSV newbuild segment inMalaysia.


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17

SECTION C. SECTOR COVERAGE

Maintain OverweightGoing into 2014, we remain OVERWEIGHT on the oil and gas sector,though we point out that different segments of the value chainexperience different demand and supply dynamics. We expect that thefavourable oil price environment will continue to be conducive for overallcapital expenditure, but a key risk would be credit tightening given thecapital intensive nature of the industry. Considering the outlook of thevarious sub-segments as well as individual company positioningstrategies, our preferred picks for the broader sector are KeppelCorporation [BUY, FV: S$12.87], Sembcorp Marine [BUY, FV:S$5.68],Ezion Holdings [BUY, FV: S$2.57] and Nam Cheong Ltd [BUY, FV:S$0.37].

Exhibit C-1: Valuations

Shareprice

(S$)

MarketCap

(S$m)

HistoricalP/E

(x)

Current YrP/E

(x)

ForwardP/E

(x)

P/B

(x)

Latest FYRev

(LC$m)

Latest FYNet profit

(LC$m)

Currency offinancial

figures

OIR

rating

Large yards

Keppel Corp* 11.21 20,264 10.6 12.0 11.8 2.2 13,958.7 2,237.3 SGD BUYSembcorp Marine* 4.42 9,237 12.2 16.0 13.4 3.6 4,430.1 538.5 SGD BUY

COSCO Corp (S)* 0.73 1,635 15.4 14.8 12.1 1.2 3,734.3 105.7 SGD SELL

Yangzijiang* 1.175 4,522 7.0 7.2 8.0 1.3 13,183.8 3,580.8 RMB HOLD

Average 12.5 11.3 2.1

Small-mid sized yards

VARD* 0.8 944 7.0 6.9 5.8 1.3 11,129.0 902.0 NOK HOLD

Jaya Holdings 0.68 521 9.5 10.4 8.5 0.8 201.8 46.1 USD

Nam Cheong* 0.295 620 15.5 11.8 8.0 2.0 876.6 136.6 MYR BUY

Dyna-Mac Holdings* 0.4 397 13.3 15.4 13.3 2.2 215.3 28.4 SGD BUY

ASL Marine 0.66 279 8.6 6.5 6.1 0.7 465.4 45.3 SGD

Otto Marine 0.058 239 - - - 0.5 374.4 -103.1 USD

Triyards* 0.69 204 3.8 5.6 4.8 1.2 275.1 31.4 USD BUY

Marco Polo Marine 0.385 131 6.1 4.8 4.3 0.8 93.5 22.3 SGD

Average 8.8 7.2 1.2

Offshore charterers and service providers

Ezion Holdings* 2.04 2,358 18.8 12.1 9.5 2.5 158.7 78.8 USD BUY

Ezra Holdings* 1.32 1,287 16.0 19.2 14.9 1.1 1,262.1 53.6 USD SELL

Swiber Holdings* 0.64 388 7.0 6.0 5.3 0.7 952.2 45.7 USD HOLD

CH Offshore 0.425 300 - - - 0.9 47.8 -7.1 USD

Falcon Energy 0.37 303 23.1 - - 1.2 94.6 10.4 USD

Kreuz Holdings 0.79 437 7.3 7.2 6.3 1.9 193.4 39.7 USD

KS Energy* 0.5 259 55.9 45.0 21.5 0.8 698.1 1.3 SGD HOLD

Mermaid Maritime 0.40 558 78.0 46.1 13.9 0.7 5,714.1 71.5 THB

Average 22.6 11.9 1.2 *OIR coverageSource: Bloomberg, OIR estimates


18/29


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20/29

OCBC Investment Research

Singapore Equities

Company financial highlights


Income statement

Year ended 31 Dec (US$m) FY11 FY12 FY13F FY14F

Revenue 107.0 158.7 295.5 496.5

Gross profit 55.3 70.7 130.0 218.4

EBITDA 71.5 104.0 199.0 261.9

Net finance expense -0.7 -4.7 -9.9 -13.4

Share of results of JVs, net 9.5 16.9 31.8 31.8

Exceptionals 12.2 17.1 17.8 0.8

Profit before tax 61.0 82.8 161.2 207.1

Minority interests 0.0 0.0 0.0 0.0

Profit attributable to shareholders 58.1 78.8 155.6 198.8

Core net profit 45.9 61.7 137.8 198.1

Balance sheet

As at 31 Dec (US$m) FY11 FY12 FY13F FY14F

Cash and cash equivalents 63.2 134.9 127.2 206.2

Other current assets 64.2 137.8 177.3 203.5

Property, plant, and equipment 270.8 793.7 1,180.9 1,289.6

Total assets 470.4 1,198.0 1,653.8 1,867.6

Debt 157.7 552.4 843.7 843.7

Current liabilities excluding debt 42.4 80.7 92.3 150.5

Total liabilities 202.0 645.2 948.0 1,006.3

Shareholders equity 268.3 552.8 705.8 861.3

Total equity 268.3 552.8 705.8 861.3

Total equity and liabilities 470.4 1,198.0 1,653.8 1,867.6

Cash flow statementYear ended 31 Dec (US$m) FY11 FY12 FY13F FY14F

Op profit before working cap. changes 55.4 74.0 138.5 230.7

Working cap, taxes and int -20.9 16.9 -35.3 25.0

Net cash from operations 34.5 90.8 103.2 255.7

Purchase of PP&E -125.5 -604.6 -400.0 -150.0

Other investing flows 55.3 -47.4 -53.7 -53.3

Investing cash flow -70.3 -652.0 -453.7 -203.3

Financing cash flow 25.7 631.2 346.5 30.3

Net cash flow -10.1 70.1 -4.0 82.6

Cash at beginning of year 68.1 63.2 134.9 127.2

Cash at end of year (incl pledges) 63.2 134.9 127.2 206.2

Key rates & ratios FY11 FY12 FY13F FY14F

Core EPS 6.4 6.8 11.9 17.1

EPS (cents) 8.1 8.7 13.5 17.2

NAV per share (cents) 37.6 60.8 61.1 74.5

Net profit margin (%) 54.3 49.7 52.6 40.0

PER (x) 20.6 19.4 12.5 9.8

Price/NTA (x) 4.5 2.8 2.8 2.3

EV/EBITDA (x) 32.1 22.0 11.5 8.8

Dividend yield (%) 0.0 0.0 0.0 0.0

ROE (%) 21.7 14.3 22.0 23.1

Net gearing (%) 35.2 75.5 101.5 74.0

Sources: Company, OIR forecasts


21/29

Return of the jack-ups; aided by Mexico

After the order momentum for jack-up rigs slowed in 2012 with only five

orders for the whole year, this year saw the return of order flows with

Keppel Corporation (KEP) securing 13 units YTD. A substantial part of it wasfrom Mexico, which was within our expectations as we had been waiting for

the re-opening of Mexicos oil and gas industry to foreign companies to

benefit rigbuilders like KEP.

Strong O&M operating margin to sustain

Unlike in 2012 when group profits were boosted by project completions in

the property arm, the focus this year was on the strong operating margins

by the offshore and marine segment, which saw a bottom of 12.0% in 4Q12

after a period of normalization. Looking ahead, we expect 1) productivity

gains in local and overseas yards, and 2) the continued execution of repeat

units that KEP is familiar with to sustain margins.

Near Market, Near Customer strategy to position it well

We have always believed that KEPs Near Market, Near Customer strategy

will position it well in terms of new orders, especially in a time when local

content requirement is increasingly favoured by end customers. As such, we

are positive on KEPs recent announcement that it will jointly develop, own

and operate a yard facility in Mexico.

Maintain BUY

Meanwhile, construction for the first semi-submersible rig for Sete Brasil is

on track; it is expected to leave Singapore early next year and arrive at

Brazil around Feb 2014. KEP has secured S$6.4b of orders YTD, and its net

order book stood at S$13.6b as at end Sep with deliveries extending to

2019. Looking ahead, we are expecting new order wins of about S$6.75b in

2014 from the Caspian Sea, West Africa, Brazil and other regions. Maintain

BUYwith S$12.87 fair value estimate.

GOOD INDUSTRY AND CO-SPECIFICOUTLOOK Rig order momentum to continue S$13.6b net order book Superior execution ability

2 Dec 2013Company Update

KEPPEL CORPORATION | BUY

Asia Pacific Equity ResearchSingapore | Industrials

BUY (maintain)Fair value S$12.87

add: 12m dividend forecast S$0.47

versus: Current price S$11.31

12m total return forecast 18%

Analysts


[email protected]

Carey Wong +65 6531 9808

[email protected]

Key information

Market cap. (m) S$20,444 /

USD16,292

Avg daily turnover (m) S$40 /

USD32

Avg daily vol. (m) 3.7

52-wk range (S$) 10.01 - 11.513

Free float (%) 78.3

Shares o/s. (m) 1,807.6

Exchange SGX

BBRG ticker KEP SP

Reuters ticker KPLM.SI

ISIN code BN4

GICS Sector Industrials

GICS IndustryIndustrial

Conglomerates

Top shareholder Temasek - 21.3%

Relative total return 1m 3m 12m

Company (%) 4 12 13

STI-adjusted (%) 5 7 6


2700

2980

3260

3540

3820

4100

9.66

10.52

11.37

12.23

13.09

13.95

Dec-12 Mar-13 Jun-13 Sep-13

Fair Value KEP SP FSSTI

Share Price (S$) Index Level

`



0th 25th 50th 75th 100th

PB

PE

ROE

Beta

MktCap

Industry Average Company

Percentile

Note: Industry universe defined as companies under identical GICS classification listed onthe same exchange.Sources: Bloomberg, OIR estimates

Key financial highlights

Year Ended Dec 31 (S$m) FY11 FY12 FY13F FY14F

Revenue 10,082.5 13,964.8 11,799.3 13,669.8

Operating profit 2,824.3 2,621.2 1,812.9 2,061.1

EBITDA 3,032.9 2,831.7 2,064.9 2,323.9

Profit attributable to shareholders 1,945.8 2,237.3 1,507.9 1,626.0

Core EPS (S cents) 89.5 105.6 83.4 90.0

Cons. EPS (S cts) na na 83.7 90.6

NTA per share (S$) 4.3 5.1 5.4 5.8


ROE (%) 25.3 24.2 15.2 15.2

Price/NTA (x) 2.5 2.1 2.0 1.9

Please refer to important disclosures at the back of this document. MCI (P) 004/06/2013

MARKET CAP: USD 16.3B AVG DAILY TURNOVER: USD 32M


22/29


Singapore Equities

2

Exhibit 1: Percentage contribution to net profit by business segments

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13F

Offshore and marine Property Infrastructure Investments

Source: Company, OIR

Exhibit 2: Order wins and net order book per year

0

2

4

6

8

10

12

14

16

2005 2006 2007 2008 2009 2010 2011 2012 2013F

S$b

Order wins

Orderbook (end of yr)

Source: Company, OIR


23/29


Singapore Equities



Income statement


Revenue 10,082.5 13,964.8 11,799.3 13,669.8

Operating profit 2,824.3 2,621.2 1,812.9 2,061.1

EBITDA 3,032.9 2,831.7 2,064.9 2,323.9

Finance costs & invt income 40.3 32.5 31.6 30.1

Associates and JV 448.0 602.5 357.5 357.5

Exceptionals 1,135.3 339.2 0.0 0.0

Pre-tax profit (excl. EI) 2,177.4 2,917.0 2,202.1 2,448.7

Profit before tax 3,312.7 3,256.3 2,202.1 2,448.7

Minority interests -923.4 -518.3 -308.8 -333.0

Profit attributable to shareholders 1,945.8 2,237.3 1,507.9 1,626.0

Balance sheet

As at Dec 31 (S$m) FY11 FY12 FY13F FY14F

Cash and cash equivalents 3,020.5 4,055.2 5,050.1 4,895.6

Other current assets 9,614.7 10,551.4 8,613.5 9,979.0

Property, plant, and equipment 2,715.5 3,337.4 3,985.5 4,622.7

Total assets 25,099.3 29,170.5 29,233.5 31,358.2

Debt 4,877.2 7,207.9 7,207.9 7,207.9

Current liabilities excluding debt 8,194.3 8,058.7 7,168.9 8,184.1

Total liabilities 13,338.0 15,592.4 14,702.7 15,717.9

Shareholders equity 7,699.4 9,246.0 9,889.9 10,666.3

Total equity 11,761.3 13,578.1 14,530.9 15,640.3

Total equity and liabilities 25,099.3 29,170.5 29,233.5 31,358.2

Cash flow statementYear Ended Dec 31 (S$m) FY11 FY12 FY13F FY14F

Op profit before working cap. changes 1,988.4 2,640.0 2,117.3 2,378.9

Working cap, taxes and int -2,202.0 -1,632.0 -17.1 -1,368.3

Net cash from operations -223.8 1,006.6 2,100.2 1,010.6

Purchase of PP&E -875.8 -835.9 -400.0 -400.0

Other investing flows -382.0 -233.5 157.3 157.3

Investing cash flow -1,257.8 -1,069.4 -242.7 -242.7

Financing cash flow 275.1 1,277.5 -862.6 -922.4

Net cash flow -1,206.5 1,214.7 994.9 -154.5

Cash at beginning of year 4,245.3 3,020.5 4,055.2 5,050.1

Cash at end of year (incl ODs) 3,020.5 4,055.2 5,050.1 4,895.6


Core EPS (S cents) 89.5 105.6 83.4 90.0

EPS (S cents) 109.1 124.5 83.4 90.0

NTA per share (S$) 4.3 5.1 5.4 5.8


PER (x) 9.9 8.7 13.0 12.0

Price/NTA (x) 2.5 2.1 2.0 1.9

EV/EBITDA (x) 7.0 8.0 10.5 9.4

Dividend yield (%) 4.0 6.7 4.4 4.3

ROE (%) 25.3 24.2 15.2 15.2

Net gearing (%) 24.1 34.1 21.8 21.7



24/29

Quality OSV builder

We see Nam Cheong Limited as a key beneficiary of the trend towards

stronger demand for offshore support vessels (OSVs) which are more

sophisticated, younger and environmentally-friendly. In our opinion,Nam Cheong has established a solid track record in the construction of

such OSVs, and the fact that two-thirds of its sales come from repeat

customers bears testament to Nam Cheongs execution capabilities.

Being a Malaysian shipbuilder, the vessels which Nam Cheong builds

are all Malaysian registered, and this provides its customers with the

ability to operate in the cabotage-protected Malaysian oil and gas

industry.

Vessel sales to gain further traction in 2014

Nam Cheong reported a stellar 71.1% and 54.9% surge in its 9M13

revenue and PATMI to MYR851.3m and MYR135.2m, respectively,

underpinned by contribution from the 20 vessels it has sold YTD for an

aggregate amount of US$431.6m. Its net order book stood at

MYR1.4b as at end Sep 2013. For its 2014 shipbuilding programme,Nam Cheong has already managed to sell 16 of the 28 vessels which

are under construction. Given the uptick in the OSV market and the

positive attributes of Nam Cheong as highlighted earlier, we expect it

to maintain its track record of selling all its build-to-stock vessels prior

to their delivery.

Maintain BUY

We continue to like Nam Cheong for its dominant leadership position

in the OSV market and its compelling valuations. The stock is trading

at an attractive FY14F PER of 6.7x, representing a 25% discount to its

closest peer Coastal Contracts (listed on Bursa Malaysia), which we

believe is unjustified. Maintain BUY, with an unchanged fair value

estimate of S$0.37, pegged to 8.5x FY14 EPS.

FULL SPEED AHEAD Strong execution capabilities

Expect robust vessel sales ahead

Compelling valuations


NAM CHEONG LIMITED | BUY






Analysts

Wong Teck Ching (Andy) (Lead) +65 6531 9817

[email protected]

Low Pei Han, CFA +65 6531 9813

[email protected]

Key information

Market cap. (m) S$609.9 /

USD486.0


USD2


52-wk range (S$) 0.23 - 0.3

Free float (%) 40.6

Shares o/s. (m) 2,103.1

Exchange SGX

BBRG ticker NCL SP

Reuters ticker NMCG.SI

ISIN code NE4

GICS Sector IndustrialsGICS Industry Machinery

Top shareholderSK Tiong Enterprise -

27.3%


Company (%) 2 9 26

STI-adjusted (%) 3 5 18


0.22

0.26

0.30

0.35

0.39

0.43

Dec-12 Mar -13 Jun-13 Sep-13

2700

3280

3860

4440

5020

5600

Fai r Value NCL SP FSSTI

Shar e Pr i ce (S$ ) Index Level

`




PB

PE

ROE

Beta

Mkt Cap

Compan y I n dust r y A ver age

Percent i le



Year Ended Dec 31 (MYR'm) FY11 FY12 FY13F FY14F

Revenue 606.2 876.6 1,287.6 1,698.1

Gross profit 137.8 188.7 271.0 352.2

Operating Profit 104.8 143.7 203.4 257.1

PATMI 93.2 136.6 187.3 232.8

EPS (MYR sen) 4.9 7.1 8.9 11.1

Cons. EPS (MYR sen) na na 8.6 10.9

PER (x) 14.5 10.0 8.2 6.7

Price/NTA (x) 2.8 2.3 2.1 1.7

EV/EBITDA (x) 16.4 11.7 8.5 6.5

ROE (%) 20.8 25.6 28.1 27.9


MARKET CAP: USD 486M AVG DAILY TURNOVER: USD 2M


25/29


Singapore Equities



Income statement


Revenue 606.2 876.6 1,287.6 1,698.1

Gross profit 137.8 188.7 271.0 352.2Selling and Administrative Expenses -36.1 -50.1 -72.1 -96.8

Operating Profit 104.8 143.7 203.4 257.1

Finance Costs -5.0 -7.8 -10.6 -17.0

Associates and Jointly Controlled Entities 1.5 2.7 2.6 2.7

Profit Before Tax 101.3 138.6 195.4 242.8

Tax -8.1 -2.0 -6.8 -8.5

Non-controlling Interest 0.0 0.0 1.2 1.5

PATMI 93.2 136.6 187.3 232.8

Balance sheet

As at Dec 31 (MYR'm) FY11 FY12 FY13F FY14F

Cash and Cash Equivalents 27.0 216.3 483.1 520.2

Other Current Assets 798.0 928.2 1,101.5 1,333.4

Property, Plant & Equipment 127.7 152.7 225.3 244.4

Other Non-current Assets 8.8 8.6 11.2 13.9

Total Assets 961.5 1,305.8 1,821.0 2,111.9

Current Liabilities less Debt 152.8 257.6 322.3 425.0

Total Debt 325.6 442.5 739.3 739.3

Total Liabilities 487.4 713.6 1,077.2 1,181.9

Shareholders Equity 474.1 592.2 742.6 927.3

Total Equity and Liabilities 961.5 1,305.8 1,821.0 2,111.9

Cash flow statement


Profit Before Tax 101.3 138.6 195.4 242.8

Working Capital Changes -50.1 -63.3 -106.4 -127.3

Net Cash from Operations 37.5 75.8 86.8 115.1

Capex -6.7 -18.2 -80.0 -30.0

Investing Cash flow -6.7 -10.1 -79.9 -29.9

Financing Cash Flow -54.8 122.7 259.9 -48.1

Net Cash Flow -24.0 188.4 266.8 37.1

Cash at Beginning of Year 44.7 22.5 210.9 477.7

Cash at End of Year 22.5 210.9 477.7 514.8

Cash and Cash Equivalents 27.0 216.3 483.1 520.2


EPS (MYR sen) 4.9 7.1 8.9 11.1

NTA/share (MYR sen) 24.8 31.0 35.3 44.1

PER (x) 14.5 10.0 8.2 6.7

Price/NTA (x) 2.8 2.3 2.1 1.7

EV/EBITDA (x) 16.4 11.7 8.5 6.5

Dividend Yield (%) 0.7 1.7 2.4 3.1

ROA (%) 9.6 12.0 12.0 11.8

ROE (%) 20.8 25.6 28.1 27.9

Net Gearing (%) 63.0 38.2 34.5 23.6

Net Margin (%) 15.4 15.6 14.5 13.7



26/29

Record high order book in 2013; lower margins

2013 has been a record year in terms of the net order book for Sembcorp

Marine (SMM) its backlog stood at S$13.5b as at 5 Nov 2013, exceeding

last years close of S$12.7b. Though it is also the year in which the groupdelivered weaker operating margins than fellow rigbuilder Keppel Corp, we

believe it is unfair to compare the two as SMM was mainly executing

relatively new-rig-type projects this year (resulting in more conservative

initial profit recognition), whereas KEP was mainly delivering its

proprietary rig designs that it is familiar with.

Focus on margins, order intake, drillships and Tuas yard

Moving into 2014, we expect the market to focus on operating margins,

order intake, the construction of SMMs drillships and operation of the new

Tuas yard. As drillship orders make up slightly less than SMMs net order

book as at Nov 2013, the market is likely to pay close attention on the

construction of SMMs first drillship. We saw a significant increase in ship

repair revenues in 3Q13 though the new Tuas yard started only in Aug

2013. As operations ramp up, we believe ship repair growth will continue

and expect about S$900m of repair revenue in FY14 vs S$650-700m in

FY13F.

Keeping an eye on competition

We also expect investors to keep an eye on the commercial shipbuilding

market, though SMM does not build newbuilds in this area. This is because

there are concerns that work-starved yards in Korea and China may be

keen to accelerate their diversification into the offshore space, therefore

intensifying competition in the newbuild rig market. Still, we expect that

clients who are more established players would prefer to stick to SMM and

Keppel Corp for quality high spec rigs. Maintain BUYwith S$5.68 fair

value estimate.

FOCUS ON MARGINS AND NEW YARDIN 2014 Record order book in 2013 New order momentum to continue New yard starts operations


SEMBCORP MARINE | BUY






Analysts


[email protected]

Carey Wong +65 6531 9808

[email protected]

Key information

Market cap. (m) S$9,279 /

USD7,394


USD13


52-wk range (S$) 4.13 - 4.847

Free float (%) 39.2

Shares o/s. (m) 2,089.8

Exchange SGX

BBRG ticker SMM SP

Reuters ticker SCMN.SI

ISIN code S51

GICS Sector IndustrialsGICS Industry Machinery

Top shareholderSembcorp Industries-

60.8%


Company (%) -2 5 0

STI-adjusted (%) -1 1 -7


2700

3040

3380

3720

4060

4400

4.06

4.51

4.96

5.41

5.86

6.31

Dec-12 Mar-13 Jun-13 Sep-13

Fair Value SMM SP FSSTI

Share Price (S$) Index Level

`




PB

PE

ROE

Beta

Mkt Cap

Industry Average Company

Percentile




Revenue 3,960.2 4,430.1 5,093.6 6,513.1

Gross profit 866.1 694.5 662.2 944.4

EBITDA 823.4 644.8 737.0 970.5


Earnings per share (S cents) 36.1 25.8 24.8 32.5

Cons. EPS (SG cents) na na 25.6 31.6


PER (x) 12.3 17.2 17.9 13.7

ROE (%) 31.9 23.3 20.3 23.1

EV/EBITDA (x) 11.3 14.4 12.6 9.5


MARKET CAP: USD 7.4B AVG DAILY TURNOVER: USD 13M


27/29


28/29


Singapore Equities



Income statement


Revenue 3,960.2 4,430.1 5,093.6 6,513.1

Gross profit 866.1 694.5 662.2 944.4

Operating and admin expenses -129.0 -140.3 -52.4 -144.3

EBITDA 823.4 644.8 737.0 970.5

Operating profit 737.1 554.2 609.7 800.1

Other expenses/income 59.9 19.2 4.1 11.2

Associates 62.9 56.3 21.3 29.1

Pre-tax profit 859.9 629.6 635.1 840.4

Profit for the year 769.1 567.4 546.2 714.3


Balance sheet

As at Dec 31 (S$m) FY11 FY12 FY13F FY14F

Cash and cash equivalents 1,989.6 1,408.9 1,607.4 1,929.9

Other current assets 1,409.3 2,232.0 2,297.2 2,579.2

Property, plant, and equipment 1,034.3 1,476.2 1,945.0 2,097.7

Total assets 5,051.6 5,786.5 6,512.4 7,370.9

Debt 48.8 378.7 600.0 500.0

Current liabilities excluding debt 2,365.1 2,685.2 2,915.1 3,430.6

Total liabilities 2,545.6 3,239.4 3,690.6 4,106.1

Shareholders equity 2,414.3 2,438.5 2,685.4 3,091.9

Total equity 2,506.1 2,547.0 2,821.8 3,264.8

Total equity and liabilities 5,051.6 5,786.5 6,512.4 7,370.9

Cash flow statementYear Ended Dec 31 (S$m) FY11 FY12 FY13F FY14F

Op profit before working cap. changes 852.5 670.6 763.9 1,005.8

Working cap, taxes and int -526.4 -463.1 -44.8 -61.9

Net cash from operations 326.1 207.5 719.0 943.8

Purchase of PP&E -437.9 -516.8 -600.0 -300.0

Other investing flows -39.1 -9.8 100.0 50.0

Investing cash flow -477.1 -526.6 -500.0 -250.0

Financing cash flow -774.5 -231.9 -50.1 -371.4

Net cash flow -925.5 -551.1 168.9 322.5

Cash at beginning of year 2,915.1 1,989.6 1,408.9 1,607.4

Cash at end of year 1,989.6 1,408.9 1,607.4 1,929.9


Earnings per share (S cents) 36.1 25.8 24.8 32.5

NTA per share (S cents) 114.2 115.2 127.2 146.8

Gross profit margin (%) 21.9 15.7 13.0 14.5


PER (x) 12.5 17.4 18.1 13.9

Price/NTA (x) 3.9 3.9 3.5 3.1

EV/EBITDA (x) 11.4 14.6 12.7 9.7

Dividend yield (%) 5.6 2.9 2.9 2.9

ROE (%) 31.9 23.3 20.3 23.1

Net gearing (%) Net cash Net cash Net cash Net cash



29/29


Singapore Equities

SHAREHOLDING DECLARATION:

The analyst/analysts who wrote this report holds/holdNILshares in the above security.

DISCLAIMER FOR RESEARCH REPORT

This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed inwhole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation forthe subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that theinformation contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy orcompleteness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained inthis report is subject to change without notice. We have not given any consideration to and we have not made any investigation ofthe investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, nowarranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result ofthe recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from afinancial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives,financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd,

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RATINGS AND RECOMMENDATIONS:

- OCBC Investment Researchs (OIR) technical comments and recommendations are short-term and trading oriented.- OIRs fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon.- As a guide, OIRs BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates totalreturns within +10% and -5%; a SELL rating indicates total returns less than -5%.

Co.Reg.no.: 198301152E

Carmen LeeHead of Research

For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

oil and gas good performance to continue in 2014

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