18 Jul 2012

SINGAPORE EQUITY Investment Research

DMG & Partners Research OIL & GAS
Jason Saw +65 6232 3871 jason.saw@sg.oskgroup.com Terence Wong, CFA +65 6232 3896 terence.wong@sg.oskgroup.com Oil & Gas Technics Oil & Gas is a full service integrator of compression systems and process modules for the global offshore oil and gas sector. 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 (%) Altman Z-Score ROCE/WACC Beta (x) Book Value/share (S) Major Shareholders (%) Ting yew Sue Ting Tiong Ching Tay Mian Cheo 14.2% 6.9% 5.2% TGH SP 3,017 223 226 1.025 0.795 1,506 19% 12% 2.9 3.1 0.72 31

3QFY12 Results Review

Private Circulation Only

TECHNICS OIL & GAS

BUY Price Previous Target

S$1.015 S$1.28 S$1.28

Results above expectations; maintain BUY

Stronger earnings driven by higher margins and gain on disposal of vessel. 3QFY12 net profit rose +1% YoY, +24% QoQ to S$7.5m. 9MFY12 net profit of S$17.8m (+11% YoY) was above expectations and accounted for 86% of our estimates. The strong results were driven by stronger gross profit margin of 47.6% and S$1.78m gain from disposal of vessel. Excluding the disposal gain, recurring earnings still made up 78% of our estimate. Management also declared an interim dividend of 8.0S, in-line with expectations. This translates into a net yield of 7.9%. As revenue and margins can be lumpy, we keep our earnings estimates unchanged. Maintain BUY with a TP of S$1.28 pegged to 12x blended FY12/13F EPS. We see re-rating catalysts from positive earnings momentum, new order wins, and listing of its subsidiary, Norr Offshore Group, in 1H2013. Higher contribution from EPCC projects lifted margins. 3QFY12 revenue fell 14% YoY to S$39.5m. We believe this could be attributed to timing of revenue recognition. 9MFY12 revenue is up +21% YoY. 3QFY12 gross profit margins improved to 48% (3QFY11: 37%) due to higher mix of revenue from EPCC projects (higher margins than Contract Engineering). As of 18 Jul 2012, Technics has a backlog order book of S$85m, with deliveries extending up to 1HFY13. Unlike the order book for rig builders, Technics order book has much shorter delivery timeline and the low book-to-bill ratio should not be taken negatively. Project duration ranges between two weeks to 18 months. Valuation: Maintain BUY with an unchanged TP of S$1.28. We value the stock based on 12x P/E on blended FY12/13F EPS, at the top of its historical range. The stock is now trading at 10.2x FY12F P/E and 9.0x FY13F P/E. Since our initiation report on 2 Jul 2012, the stock has appreciated 9% but we see more upside. Our TP implies 26% upside from its last closing price.
FYE 30 Sep (S$m) Turnover Reported net profit % Chg YoY Consensus EPS (S$ cents) DPS (S$ cents) Div Yield (%) ROE (%) ROA (%) P/E (x) P/B (x)
Source: Company data and DMG Estimates

Share Performance (%) Month 1m 3m 6m 12m Absolute 11% 12% 17% 5% Relative 4% 11% 8% 8%

6-month Share Price Performance

Share price (S$) 1.05 1.00 0.95

0.90 0.85
0.80 0.75 17-Jan 17-Feb 17-Mar 17-Apr 17-May 17-Jun 17-Jul

FY10 103.6 16.4 165.2 nm 12.5 10.5 10.3 62.2 14.6 8.1 5.4

FY11 125.8 18.7 14.2 nm 9.1 12.0 11.8 49.0 14.7 11.2 4.0

FY12F 165.7 20.6 10.0 21.4 10.0 8.0 7.9 38.1 13.7 10.2 3.7

FY13F 198.8 23.3 13.2 22.9 11.3 8.0 7.9 39.2 13.8 9.0 3.3

FY14F 238.6 26.7 14.7 24.8 13.0 9.0 8.9 39.3 14.0 7.8 2.9

DMG Research OSK

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DMG Research OSK See important disclosures at the end of this publication DMG Research 1

Figure 1: Quarterly financial summary

FYE 30 Sep (S$m) Profit and loss Revenue COGS Gross profit EBITDA Depreciation and amortisation Operating profit Interest income Interest expense Share of results of associates Exceptional items / Net other income Profit before tax Income tax Minority interest Net profit 45.71 -28.83 16.88 10.93 -1.33 9.60 0.16 -0.31 -0.08 0.37 9.75 -1.74 -0.55 7.47 49.80 -31.15 18.66 11.42 -1.09 10.33 0.43 -0.25 0.00 -0.51 10.01 -1.72 -2.23 6.06 39.53 -20.70 18.83 11.24 -1.56 9.69 -0.05 -0.51 0.00 2.00 11.13 -2.69 -0.92 7.53 24% 1% 11% 14% -6% 1% 1% -2% 12% 3% -21% -14% 103.05 -63.75 39.29 24.12 -2.92 21.21 0.28 -0.91 -0.12 -0.71 19.76 -3.89 0.24 16.10 124.65 -74.24 50.41 28.74 -3.83 24.91 1.01 -1.07 0.00 1.58 26.44 -5.45 -3.19 17.80 11% Mainly attributed to Norr Offshore 9MFY12 net profit accounted for 86% of DMG estimate. Stripping out the gain from disposal of vessel, net profit was 78% of DMG estimate 34% 3QFY12: S$1.78m gain on disposal of vessel 17% 28% 19% 21% 3QFY11 2QFY12 3QFY12 QoQ (%) YoY (%) 9MFY11 9MFY12 YoY (%) Remarks

Analysis Gross margins (%) Recurring EBITDA margins (%) Operating profit margins (%) % income tax to PBT Net debt to total equity (x) Net Asset Value (S$ cents) 36.9 23.9 21.0 17.8 -0.30 27.2 37.5 22.9 20.7 17.2 -0.27 27.4 47.6 28.4 24.5 24.1 -0.12 31.0 38.1 23.4 20.6 19.7 40.4 23.1 20.0 20.6 DMG FY12F: 17.0% Net gearing improved due to sale of vessel Higher mix of revenue from EPCC projects DMG FY12F: 20.5%

Source: Company data and DMG estimates

Figure 2: Backlog order book reported

Order book (S$m) 160 130 103 141

Figure 3: Quarterly GP margins

GP margins (%) 60.0

140
120 100

121 83

119 96 85

50.0 40.0 30.0 20.0 10.0 Quarterly GP margins Trailing 12m GP margins

80
60

40
20

1QFY11

1QFY09

2QFY09

3QFY09

4QFY09

1QFY10

2QFY10

3QFY10

4QFY10

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

Source: Company data

Source: Company data and DMG estimates

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 2

3QFY12

FINANCIAL TABLES
FYE 30 Sep (S$m) Income statement Revenue Expenses (except D&A) EBITDA Depreciation and amortisation EBIT Interest income Interest expense Share of results of associates/JVs Exceptional items Profit before tax Income tax Minority interest Net profit (reported) Net profit (pre-exceptional/core) Balance Sheet Total Assets Fixed assets Other long-term assets Inventory Receivables Other short-term assets Cash and short term investment Total Liabilities ST debt Payables Other short-term liabilities LT debt Other long-term liabilities Total Equity Shareholders' funds Minorities Cash Flow Statement Operating cashflow Capex & acquisitions Free cashflow Other inv cashflow New borrowings Share issuance Dividends paid Other fin cashflow Net cashflow YoY Growth Revenue (%) Operating profit (%) Profit before tax (%) Net profit (%) Margins EBITDA (%) EBIT (%) PBT (%) Per Share Data Outstanding shares EPS (S cents) DPS (S cents) BVPS (S cents) ROE (%) ROA (%) Net debt-to-total equity (%) P/E (DMG) P/B (x) Dividend yield (%) Source: Company data and DMG estimates FY10 103.6 -77.3 26.3 -2.4 23.9 0.1 -1.4 -0.9 -2.3 19.4 -4.8 1.8 16.4 18.7 FY11 125.8 -102.0 23.8 -3.4 20.4 1.9 -1.3 0.0 0.2 21.3 -4.5 1.9 18.7 18.5 FY12F 165.7 -131.7 34.0 -4.4 29.6 2.3 -1.2 0.0 0.0 30.6 -5.2 -4.8 20.6 20.6 FY13F 198.8 -160.4 38.4 -5.0 33.4 1.9 -1.2 0.0 0.0 34.1 -5.8 -5.0 23.3 23.3 FY14F 238.6 -195.7 42.8 -5.5 37.4 2.1 -1.2 0.0 0.0 38.2 -6.5 -5.0 26.7 26.7

112.0 31.4 0.0 9.3 13.1 13.0 45.3 88.5 30.4 18.9 33.0 5.1 1.0 23.6 24.5 -0.9

141.9 34.1 12.1 8.7 30.0 36.2 20.8 92.7 36.9 27.3 22.7 4.5 1.2 49.2 51.9 -2.8

159.7 39.7 12.1 9.1 34.0 43.2 21.6 101.7 33.1 36.3 22.7 8.3 1.2 58.1 56.0 2.0

178.8 44.7 12.1 10.9 40.9 43.2 27.0 108.9 33.1 43.6 22.7 8.3 1.2 69.9 62.9 7.0

202.8 49.3 12.1 13.1 49.0 43.2 36.1 117.6 33.1 52.3 22.7 8.3 1.2 85.1 73.1 12.0

45.5 -11.4 34.1 -1.3 -1.7 0.0 0.0 -12.8 18.3

-10.4 -5.9 -16.3 -14.6 10.8 41.1 -31.8 -5.9 -16.8

33.3 -10.0 23.3 -7.0 0.0 0.0 -16.5 1.0 0.8

31.2 -10.0 21.2 0.0 0.0 0.0 -16.5 0.7 5.4

34.7 -10.0 24.7 0.0 0.0 0.0 -16.5 0.8 9.1

-20% 152% 182% 165%

21% -14% 10% 14%

32% 45% 43% 10%

20% 13% 11% 13%

20% 12% 12% 15%

25.4% 23.1% 18.7%

18.9% 16.3% 17.0%

20.5% 17.8% 18.5%

19.3% 16.8% 17.1%

18.0% 15.7% 16.0%

131 12.5 10.5 18.7 62.2 14.6 Net cash 8.1 5.4 10.3

206 9.1 12.0 25.2 49.0 14.7 42.0 11.2 4.0 11.8

206 10.0 8.0 27.2 38.1 13.7 34.1 10.2 3.7 7.9

206 11.3 8.0 30.5 39.2 13.8 20.6 9.0 3.3 7.9

206 13.0 9.0 35.5 39.3 14.0 6.3 7.8 2.9 8.9

OSK Research See important disclosures at the end of this publication DMG Research OSK See important disclosures at the end of this publication DMG Research 3

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

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