SBI Offshore ~ A great leap forward as earnings multiply

7/31/2019 SBI Offshore ~ A great leap forward as earnings multiply

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April 25, 2012

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DMG Research

OSK Research

OSK ResearchDMG Research

SINGAPORE EQUITYInvestment Research

DMG & Partners Research Initiating Coverage Private Circulation Only

OIL & GASEdison Chen+65 6232 [email protected]

SBI Offshore BUY -Price S$0.21

Terence Wong, CFA+65 6232 [email protected]

Previous -

Target S$0.34

OIL & GAS

Asias leading turnkey drilling equipmentsolution provider with a portfolio of OEMoffshore equipment product lines.

Stock Profile/Statistics

Bloomberg Ticker SBIO SPSTI 2,974.4Issued Share Capital (m) 121.7Market Capitalisation (S$m) 25.652 week H | L Price (S$) 0.225 0.138Average Volume (000) 23.1YTD Returns (%) 0.0Net gearing (x) Net cashAltman Z-Score 3.6ROCE/WACC 0.5Beta (x) NaBook Value/share (S) 10.2

Major Shareholders (%)

Tan Woo Thian David 37.7Hui Choon Ho Jonathan 36.3

Share Performance (%)

Month Absolute Relative1m 5.0 5.53m 16.7 12.36m 16.7 8.912m (10.6) (3.7)

6-month Share Price Performance

-

0.05

0.10

0.15

0.20

0.25

26-Oct-11 26-No v-11 26-Dec-11 26-Jan-12 26-Feb-12 26-Mar-12

(S$)

A great leap forward as earnings multiply

SBI Offshore (SBI) is a home-grown Singapore offshore services providerprimarily engaged in distribution of offshore equipment with reputable brand nameto shipyards and other offshore players in the Asia-Pacific region. Through

investments, SBI has transformed itself to become a leading turnkey drillingequipment solution provider. We favour SBI because of 1) its leap to becomeAsias third turnkey drilling equipment solution provider for tender rigs, 2) growthprospects from its products and 3) clear undervaluation. Initiate with BUY at a TPof S$0.34 based on 9.9x industry average FY12 P/E. Catalysts include 1) moreturnkey contract wins, and 2) move into the contract manufacturing market foroffshore equipment manufacturers such as Aker.

Metamorphosis: Asias third turnkey drilling equipment solution provider.SBI has recently become the first ever Asian turnkey drilling equipment solutionprovider joining the ranks of drilling equipment giants like Aker and NOV. With itsmaiden contract win of US$30m, SBI has found its niche in the smaller yet stilllucrative tender rig market.

Robust industry outlook provide growth prospects for all productssegments. SBI is currently in possession of multiple OEM product lines, rangingfrom lifeboats to offshore cranes. In view of the robust prospects for the offshoreoil & gas industry, we believe that outlook for SBI remains bright.

10-fold earnings jump shows clear undervaluation. In view of the recordorderbook of US$41m (5.8x of FY11 revenue) as well as its contract winmomentum, we expect SBIs earnings to surge 10-fold to US$3.2m this year andsubsequently double again in FY13. Based on its forward earnings, SBI looksattractive at the current trading price of S$0.21, as its P/E will fall drastically to6.2x in FY12, and further to 2.8x in FY13.

FYE 30 Dec (US$m) FY09 FY10 FY11 FY12F FY13FTurnover 12.2 9.3 7.1 32.0 66.8Net profit 1.9 0.2 0.3 3.2 7.1% chg YoY (16.1) (91.7) 56.3 1168.3 124.3Consensus Na Na Na Na NaEPS (S) 2.3 0.2 0.3 3.4 7.6DPS (S) 0.2 0.2 0.2 0.8 1.9Div Yield (%) 1.0 1.0 1.0 4.0 9.0ROE (%) 28.5 1.7 2.6 27.3 43.4ROA (%) 15.6 1.1 1.9 11.8 15.6P/E (x) 9.0 134.6 73.4 6.2 2.8P/B (x) 2.6 2.0 2.1 1.7 1.2

Source: Company data and DMG Estimates


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TABLE OF CONTENTS

Company Background 3

Industry Analysis 6

Investment Merits 10

Risks 11

Earnings Forecast 12

Valuation 14

Financial Tables 15

Appendix 16

Disclaimer 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 inmarketing and distribution of offshore equipment with reputable brand name toshipyards and other offshore players in the Asia-Pacific region.

Through directly investing or partnering with strong offshore original equipmentmanufacturer (OEM), SBI has transformed itself to become a leading turnkey drillingequipment 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 itsprincipals. 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 importantcomponent of an offshore rig, generally representing 60% of total construction costs. Mostnotably, it is the exclusive ASEAN-China distributor for Aker Solutions drilling equipmentdivision, which is the worlds second largest drilling equipment and systems provider. Thismeans that all orders within the region would be handled by SBI, regardless of whether thecustomers go through SBI or Aker directly.

About Aker Solution

Listed on the Oslo Stock Exchange, Aker Solution is a large Norwegian oil servicescompany that offers engineering, construction, maintenance, modification and operationservices for new and existing oil & gas fields. As at end 2011, the company generatedprofits of NOK1.6 billion (S$347m) on the back of NOK36.5 billion revenue and hired18,450 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 worldssecond 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 Figure 3: 2011 revenue geographical breakdown

Principal / Associate /Subsidiary

Products

Aker Solution Drilling Equipment

Jiangyin Neptune Marine

Appliance (JNMA)

Lifeboat / Davit

RBV Energy Singapore API Pipe/ Fitting / Manifold

Sea Reef Offshore (SeaReef)

Deck Machinery / OffshoreLoad Handling System/Offshore Crane

Singapore

32%

China

5%

Southeast

Asia (Ex-

Sing)

14%

Europe

46%

USA

1%

Others

2%

Source: Company data Source: Company data

Other than drilling equipment, SBI has access to multiple offshore OEM product linesranging from lifeboats to offshore cranes. This access is gained through the acquisition ofSea Reef Offshore (100% subsidiary), a partnership with RBV Energy (50% joint-venture)and an investment in JNMA (associate with 35% stakes). While Sembcorp Marine (PPLshipyard, Jurong Shipyard) and COSCO (COSCO Nantong shipyard) are the directcustomers for these products, end consumers include global oil & gas giants such asAtwood, Ensco, Maersk, Transocean and Seadrill.

Secured the first turnkey drilling equipment project

Leveraging on the enhanced engineering capabilities with recent investments as well as itsestablished track record with Aker, SBI has been moving strategically up the value chainthrough 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 inexcess of US$30m.

We believe this is a great leap forward achieved by SBI, as the tender rig contract win actsas a strong testimonial to the groups eng ineering and manufacturing capabilities. Underthe contract, SBI will perform the entire engineering work in-house through its US Houstonbased 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 thecomponents 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

Source: Company data


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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 betterserve the Asian shipyards which account for the building of approximately 80% of all mobileoffshore drilling units (MODUs) and construction units in the world. In view of this need, SBIis able to tap into this niche and create opportunities for these western offshore drillingequipment companies to outsource their production processes to Asia.

SBI has established a joint venture (30% stake) with Honghua Group (listed on the HongKong Exchange), Chinas second largest land-rig builder, which specialises in contractmanufacturing and fabrication services for offshore and marine equipment companies..Benefiting from Honghuas enormous production facilities as well as SBIs in-depthknowledge in the offshore drilling equipment industry, the joint venture is expected to havesignificant first-mover advantage to become the first Asian contract manufacturer in theindustry.

Apart from the partnership with Honghua Group, SBI also possess direct or indirect strongproduction capabilities with three manufacturing facilities in Jiangsu province, China, withtotal manufacturing area of more than 45,000 square metres. These facilities have beenaudited and approved by Aker to carry out subcontract work. Management is optimistic thatonce 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 MarineAppliance Lifeboat Facility

Jiangyin Neptune Lifeboat/DavitFacility

Jiangyin SBI Offshore EquipmentFacility

Source: Company data


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INDUSTRY ANALYSIS

Robust oil & gas industry outlook

Demand for oil to outstrip supply. According to Clarkson, global demand for oil willgrow 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 continueto outstrip supply by 1.8 billion barrels, providing strong support for the offshoreexploration and production (E&P) spending. Consequently, spending sentiment of globaloil majors and national oil companies remain bullish as they have provided very strongcapex guidance, growing around 6-8% YoY in 2012.

Figure 6: Global oil demand & production

-2

-1

0

1

2

3

4

74767880828486

889092

2009 2010 2011 2012f

%mb/d

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 theMODUs such as jack-up rigs, semi-submersible platforms and drillships were constructedby either US or Singapore shipyards. According to Clarkson, the market now favours onlyAsia, with China and Korea aggressively snapping up market share and Singaporeholding onto its strong position. Given that SBI is Akers exclusive ASEAN-China agentand Aker is estimated to have around 17% of the drilling equipment market share, webelieve that SBI is in a very favourable position. As long as Aker continues to win drillingequipment contracts within this region (the most recent one being a jack-up rig to be builtin a Chinese shipyard), SBI is poised to benefit.

Figure 7: MODU order book by country(unit)

Figure 8: SBIs target market share (unit)

Other, 46

China, 31South

Korea, 52

Singapore, 46

SBI'smarket

(ASEAN-China), 83

SouthKorea, 52

Other, 40

Source: Clarkson, as of 1

stMar 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 steepdecline, despite the fact that a decent number of new fields are still being discoveredevery year. Such a phenomenon is more apparent within the Asia Pacific region which weattribute to the fact that many newly discovered fields were considered to be marginalfields, or fields that were not economically feasible to develop.

Figure 9: Global oil field discoveriesand start-up (no. of fields)

Figure 10: Asia Pacific oil fielddiscoveries and start-up (no. of fields)

0

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200

2009 2010 2011

New field discoveries

Start-up fields

0

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30

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2009 2010 2011

New f ield d iscoveries

Start-up fields

Source: Clarkson

However, in view of higher crude oil prices, depleting brown field reserves and lowerdiscovery rates of large green fields, development of marginal fields within this region hasgained popularity underpinned by a strong government support.

For instance, Malaysia currently has 106 marginal oil fields containing 580 million barrelsof oil and Petronas plans to develop 27 of them, with the Berantai fields and Balai clusteralready contracted to be developed. Similarly, the Indonesia government also foresees adecline 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 fielddevelopment cost, choosing the right drilling rig is important. According to a researchpaper published by Society of Petroleum Engineers, tender rig is a better choice toenhance economics, due to its low development cost as well as its mobility in servicingmultiple wells in close proximity.

Therefore, demand for tender rig has been strong and we expect this to persist for thenext 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 fieldsin 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 andanother semi-sub tender rig building in Keppel FELS.

About Tender Rig

As opposed to platform rig, facilities required to support the drilling operation such aspower, living quarters, etc, are located on the tender, while actual drilling equipment suchas the derrick, topdrive, blowout preventer, etc are installed on the platform. As such, thedesign load and required deck area of using a tender rig is only about one quarter of thatof a platform rig of comparable capacity. Hence, the cost of constructing a tender rig issignificantly lower than that of other rigs. There are two types of tender rig, with the bargetype fit for shallow water, and the more powerful semi-submersible type suitable for deepwater.


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Figure 11: Cost comparison between tender rig and other MODUs

Drillship orSemisub

SemisubTender

rig

Jack-up Tenderbarge

Average day rates (US$/day) 500,000 170,000 145,000 115,000

Average construction cost (US$m) 600 200 200 115

Source: Seadrill

Since the building costs for tender rigs are much lower compared to other MODUs, ittends to carry a lesser amount of drilling equipment with a simpler design. As such, bigplayers such as NOV and Aker places less emphasis on this market. SBI spotted theopportunity and managed to partner with Aker to provide turnkey solutions withcompetitive pricing and customisation flexibility. We believe the recent contract win willopen up more opportunities for such type of turnkey project in the future.

Figure 12: Offshore drilling & completion capex (US$m)

0

200

400

600

800

1000

1200

1400

2009 2010 2011 2012

Philippines

Malaysia

Indonesia

India

China

Australia

Source: Frost & Sullivan

Niche offshore lifeboat market

Because of the recent occurrence of offshore disasters, companies are placingincreasingly 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. SBIsassociate JNMA focus on the higher-end, large-capacity (>60 people) lifeboat market asopposed to the highly competitive self-rescue boat (small capacity) and the liferaft(collapsible without a motor) market. This market is currently dominated by threeinternational players, namely, Norsafe, Schat-Harding and JNMA with estimated world-wide sales of around 1500 sets, or US$200m last year.

Generally, every new additional offshore fleet such as drilling rig or production unit willrequire three to four sets of lifeboat sufficient for all of the passenger and crew on boardto perform emergency evacuation. Furthermore, the International Maritime Organisation(IMO) has been tightening safety requirements in the past few years through theInternational Convention for the Safety of Life at Sea (SOLAS) treaty. Most notably, theassumed 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) Figure 14: Offshore lifeboat volume market share

8000

10000

12000

14000

16000

18000

20000

2008 2009 2010 2011

Off shore mobile fleet

Off shore fixed p roduction structures

Norsafe45%

Schat-Harding

35%

JNMA17%

Other3%

Source: Clarkson Source: Company data and DMG estimates

While ship-launched lifeboat (lowered into water by davits from deck) is priced aroundUS$500,000 to US$750,000 per set, freefall lifeboats (which drops instantly into waterfrom deck) can cost as much as US$8m per set. Despite JNMA selling 250 lifeboat setslast year, the revenue it generated was five to six times lesser compared to that ofNorsafes, due to the absence of freefall lifeboat contribution. Though JNMA was capableof producing freefall lifeboats, the majority of the demand for such advanced lifeboatscame 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 from2013 onwards.


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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 providerjoining the ranks of Aker and NOV. Recognising the importance of cost savings indeveloping marginal fields, SBI provides a lower cost turnkey solution that includes

engineering as well as construction of the derrick equipment set. Their niche is thesmaller yet still lucrative tender rig market and SBI has proven its worth with its maidencontract 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 ofmultiple OEM product lines, ranging from lifeboats to offshore cranes. In view of therobust offshore oil & gas industry outlook, we believe that outlook for SBIs products toremain bright given its clear focus in Asia where more than 80% of the MODUs are beingbuilt. With SBIs strong sales network with customers including Sembcorp Marine,COSCO Shipyard, Daewoo, Hyundai and end customers consisting of global oil & gasgiants, SBIs earnings are poised to improve even further.

10-fold earning jump shows clear undervaluation. In view of the record orderbook ofUS$41m (5.8x of FY11 revenue) as well as its contract win momentum, we expect SBIsearnings 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 ofS$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

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FY10 FY11 FY12f FY13f

PATMI (US$m) - LHS P/E (x) - RHS

Source: Company data and DMG estimates

Healthy balance sheet to provide growth opportunities. As of FY11, SBIs balancessheet remains healthy despite the numerous investments. With little borrowings and a netcash position, SBI has room to weather through any unexpected storms. SBI is also wellpositioned to gear up to capture the potentially significant growth opportunities that wesee available. If successful, SBIs position as Asias third turnkey drilling solutionsprovider will be solidified.


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INVESTMENT RISKS

Being largely dependent on Aker. The bulk of the revenue which SBI is expected togenerate is largely related to Akers drilling equipment. As such, SBIs success is largelyreliant upon Akers performance with the latter currently facing intense competition fromNOV. Moreover, in the event that Aker chooses not to renew SBIs representativeagreement (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 successfullydiversified SBIs revenue streams with ownership in other offshore equipment companiessuch as those manufacturing lifeboats, high pressure pipes and fittings as well asoffshore cranes and deck machinery. By providing turnkey equipment solutions in Asia, ithas become one of Akers customers and it is supporting Aker with lower-cost contractmanufacturing in Asia.

Project execution risk. Currently, SBI has no record in the execution of turnkey drillingequipment project. However, as SBI enjoys good relationship with Aker and Akerunderstands 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 todemonstrate its abilities, opening up more doors in the future. Though there is a risk thatthe 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, demandfor SBIs products and services are generally related to the E&P spending and crude oilprices which ultimately depends on global economics. Though we expect E&P spendingto remain resilient, any unexpected downturn in economy could impact SBIs business.

Low free-float result in poor liquidity. Currently, SBIs founder Mr David Tan andchairman Mr Jonathan Hui owns more than 74% of the company. As such, free float islow at 26%, resulting in poor liquidity with average volume of only 23 lots in the past threemonths. However, for long-term investors, large management ownership could alsoindicate that the insiders are upbeat over the groups prospects.


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EARNINGS FORECAST

Achieved record orderbook. Boosted by the maiden turnkey drilling equipment contractwin, SBIs orderbook stood at a record high of US$41m as of end Feb 2012, which isequivalent to 5.8x of FY11 revenue. The US$30m turnkey project is expected to becarried out in the next 18 months and orders for other product categories are to befulfilled and recognised within the next 3 12 months.

Prospects remain bright across all products segments. Most notably, SBI is currentlybidding 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 withthe Asian shipyards, we opine that it is a matter of time before SBI secures its secondturnkey contract. On the other hand, its UK branded (RBV) piping products had recentlyentered up the Korean market, while its JNMC lifeboats are en route into the lucrativeNorwegian Sea. Last but not least, demand for its Houston-based subsidiary Sea Reefsengineering services and offshore equipments remain robust, as it has been servicingsome of the world-class US drilling company. As such, we expect order winningmomentum to continue across all products segments.

Figure 16: Orderbook breakdown as ofend Feb 2012 Figure 17: Expected order wins (US$m)

Turkeyproject,

US$30m

JNMC,US$4m

RBV,US$5m

Sea Reef,US$2m

0.0

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20.0

30.0

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90.0

2012f 2013f

Turkey project Aker JNMC RBV Sea Reef


Net margin to improve; on track for record performance. Previously, SBI acted mainlyas a distributor, booking only an agents fees as revenue. Hence, gross margin reached ahigh of 52.9% in FY11. However, as a result of high G&A expenses and new businessstart-up costs, net margins have remained at the low single digits.

Figure 18: Margins Figure 19: Revenue & profits

0%

10%

20%

30%

40%

50%

60%

FY10 FY11 FY12F FY13F

Gross margin Net margin

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30

40

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60

70

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Revenue Profits

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 expectits gross margin to decrease as the group will book in the full revenue and cost for theequipment. However, net margin is forecasted to increase significantly to around 10% inthe absences of further G&A expenses and other start-up costs. Furthermore, we expectbusiness 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 achieverecord revenue and profits from 2012 onwards.

Working capital to be funded by account payable and borrowings. With the surge inrevenue, working capital needs are expected to grow. However, SBI expects the majorityof the project financing to come from the customer as well as credit lines provided bybanks. Meanwhile, given its net cash position as of end FY11, SBI has room to gear up infunding its working capital needs as well as the maintenance capex needs which isapproximately US$1.5m/year.

Expecting more dividends. Despite minimum profitability for the past two years, SBIhad still been paying out consistent dividends of 0.2S/share every year, equivalent tomore than 80% of its earnings. In view of the 10-fold increase in profits, we forecast thegroup to distribute 25% of its earnings out as dividends, translating to 0.8S/share forFY12 and 1.9S/share for FY13. This implies dividend yield at 4% and 9% respectively.

Figure 20: Working capital & borrowings (US$m) Figure 21: EPS & DPS (S)

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Payab les Sho rt-term borrowings

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EPS DPS

Source: Company and DMG estimates 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 inbidding for the smaller yet lucrative tender rig turnkey drilling equipment package. While itis not feasible to compare SBI directly with the only two world-class drilling equipmentproviders, we choose to use the broader offshore oil & gas service peers that are listed inSingapore in valuing the company.

Trading below peer average, initiating coverage with a BUY. At the current price ofS$0.21, SBI is now trading at only 6.2x FY12F P/E and 2.8x FY13F P/E based on ourearnings forecasts. Given its superior ROE and dividend yields, we believe SBI shouldtrade above its peers average of 9.9x, translating to a TP of S$0.34 (61% upside).

Figure 22: Peer financial comparison table

Net Margin ROE Dividend

Curr FY Nex FY Curr FY Nex FY Curr FY Nex FY Yield

Curr FY

SBI OFFSHORE LTD 25.6 Dec 9.9% 10.60% 27.4% 43.4% 6.2 2.8 4.0%

KREUZ HOLDINGS 186.6 Dec 20.6% 21.2% 22.1% 19.3% 4.5 3.9 0.0%

NORDIC GROUP 41.2 Dec 8.4% 9.2% 13.5% 14.6% 7.4 6.1 4.9%

HEATEC JIETONG 13.1 Dec 2.5% Na 4.2% Na 12.0 Na 2.8%

IEV HOLDINGS LTD 129.9 Dec 15.1% 11.2% 39.9% 36.6% 6.0 5.8 0.0%

FALCON ENERGY GR 223.9 Dec 19.9% 35.0% 9.8% 15.2% 12.2 Na 0.0%

DYNA-MAC HOL LTD 405.1 May 12.8% 12.6% 16.5% 16.6% 18.8 16.7 4.4%

TECHNICS OIL & 204.0 Sep 13.7% 15.1% 37.6% 33.7% 8.7 8.3 8.7%Industrial Average (Ex SLA) 13.3% 17.4% 20.5% 22.7% 9.9 8.2 3.0%

P/E (x)Company Name Market

Cap as of

(S$m)

FYE

Source: Bloomberg and DMG estimates

Figure 23: Historical forward P/E valuation

0

20

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100120

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200

Forward P/E Average +1 S.D. -1 S.D.



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FINANCIAL TABLES

Figure 24: Profit and loss

FYE 31 Dec (US$ m) FY09 FY10 FY11 2012F 2013F

Revenue 12.2 9.3 7.1 32.0 66.8

Cost of sales (8.0) (5.9) (3.4) (26.8) (54.3)

Gross profit 4.2 3.4 3.8 5.3 12.5

General & Admin expenses (1.9) (3.5) (3.8) (2.5) (5.3)

Other income 0.2 0.2 0.4 0.0 0.0

Share of profit of associates / JVs 0.2 0.2 0.2 1.2 1.5

EBIT 2.8 0.3 0.6 4.0 8.7

Interest expenses (0.4) (0.1) (0.1) (0.2) (0.3)

PBT 2.4 0.2 0.5 3.7 8.4

income tax (0.4) (0.1) (0.2) (0.6) (1.3)

MI (0.0) 0.0 (0.0) 0.0 0.0

PATMI 1.9 0.2 0.3 3.2 7.1Source: Company data and DMG estimates

Figure 25: Balance sheet


Total Assets 12.4 14.6 13.1 27.0 45.7

Fixed assets 1.2 5.7 5.3 6.3 7.3

Other long-term assets 2.0 3.6 4.2 5.3 6.8

Inventory 0.2 0.2 0.4 5.4 10.9

Receivables 5.5 3.0 1.7 9.6 20.0

Other short-term assets 0.0 0.2 0.0 0.0 0.0

Cash and short-term investment 3.5 1.9 1.6 0.4 0.6

Total Liabilities 5.5 5.4 3.5 15.3 29.2

Short term borrowings 1.7 1.5 1.2 3.2 4.7Payables 3.1 3.8 2.3 12.0 24.4

Other short-term liabilities 0.5 0.0 0.1 0.1 0.1

Long-term liabilities 0.0 0.0 0.0 0.0 0.0

Shareholder's funds 6.8 9.3 9.5 11.6 16.4

Minorities 0.1 0.1 0.1 0.1 0.1Source: Company data and DMG estimates

Figure 26: Cash flow


PBT 2.4 0.2 0.5 3.7 8.4

Depreciation & amortization 0.3 0.3 0.4 0.5 0.5

Change in working capital 0.5 3.2 (0.4) (3.2) (3.6)

Operating cashflow 2.5 2.9 (0.3) (0.4) 2.6

Capex & acquisitions (0.6) (6.2) (0.7) (1.5) (1.5)

Free cashflow 2.0 (3.3) (1.0) (1.9) 1.1

New borrowings (0.0) (0.3) (0.3) 2.0 1.5

Share issuance 3.6 2.3 0.0 0.0 0.0

Dividends paid (1.0) (0.3) (0.2) (1.0) (2.3)

Net cashflow 2.2 (1.8) (0.3) (1.0) 0.3



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APPENDIX 1: DIRECTORS PROFILE

Name Position Background

MrJonathanHui

ExecutiveChairman andCEO

Appointed since March 2008, responsible for thedaily 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 wasresponsible for business development and financefor business development and finance

He was also a Director at Aviation and ElectronicsSupport Pte. Ltd. Singapore (2001-2003)

He was an audit senior with Arthur Andersen,United Kingdom (1980-1983), senior manager withArthur Andersen, Singapore (1983-1989), Vice-President of Merrill Lynch (1990-1994) andExecutive Research Director of UBS Securities in1994

Mr DavidTan

ExecutiveDirector

Founded SBI in 1994 Since 1 July 1997. He is responsible for securing

agency contracts from Aker MH of Norway tomarket its range of drilling equipment in Asia,including Singapore

Prior to establish the company, Mr. Tan was amanager in the rig-building commercial departmentof Keppel FELS Limited and was involved in costestimations and marketing of rig-building services

Subsequently, he was the manager of Sea ScanInternational where he was involved in theprocurement of equipment and accessories for theship building and/or ship repairing activities ofKeppel Group

He was also the business manager of Aker MH forthe China market from 2007 to 2008

Ms ChenJiayu

AlternateDirector toDavid Tan

From 2007 to 2009, Ms. Chen was the groupsExecutive Director and was responsible foroperational, human resources and finance matters

Mr GiangSovann

LeadIndependentDirector

Held the position of SBIs Lead IndependentDirector 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 Controllerof Golden Polindo Industries Group

He was also the Chief Financial Officer of theSingapore Island Country Club, Innovalues Limitedand Sunmoon Food Company Limited

Graduated with a Bachelor of Administration degreewith great distinction from University of Regina,Canada


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Mr ChanLai Thong

IndependentDirector

Held the position of SBIs Independent Directorsince September 2009

Mr Chan has about 30 years of internationalmarketing and business development experience inseveral industries, particularly in the offshore andmarine industry

He is currently a Director of several privatecompaniesincluding Weatherock China Ltd,

Chongqing Panxin Industry Company Ltd, andSichuan Bangkok Investment Prior to that, he was with the Keppel Group and was

a Group General Manager in both KeppelCorporation Ltd and Keppel Offshore & Marine Ltdand help to develop the markets in Southeast Asia,Middle East, Bulgaria, Azerbaijan and Kazakhstan

Graduated from the National University ofSingapore with a Bachelor of Science (Honours) in1980

Mr WongKok Hoe

IndependentDirector

Appointed since September 2009 Mr. Wong is also the Group Chief Operating Officer

of the Centurion Group which primarily engage infund management, private equity investments andproperty development and investments

He is also a director of various public listedcompanies in Singapore

Prior to this, he was a partner in a local advocatesand solicitors firm with more than 18 years ofexperience in legal practice, mainly in the areas ofcorporate law and corporate finance

mergers and acquisitions and venture capital.Mr.Wong holds a Bachelor of Laws (Honours) degreefrom the National University of Singapore


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APPENDIX 2: PRODUCT CATALOGUE

Aker Solutions Drilling Equipment

Source: Aker Solution


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JNMAs Lifeboat

Free Fall Lifeboat

Totally Enclosed Lifeboat

Partially Enclosed Lifeboat


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Sea Reefs 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 specificinvestment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluateparticular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation toany 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 warrantynor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in t his report are subject tochange 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 InvestmentBank 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 thesecurities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporationswhose 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 nothave proprietary positions in the subject companies, except for:

a) Nilb) 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 inthis report, except for:

Analyst Companya) Nil

b) Nil

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SBI Offshore ~ A great leap forward as earnings multiply

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