1466220077

MALAYSIA
July 26, 2012
OIL & GAS -

EQUIPMENT & SVS
Fields of gold
IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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OIL & GAS - EQUIPMENT & SVS
July 26, 2012
TABLE OF CONTENTS
1. BACKGROUND .......................................................................................................... 6
2. OUTLOOK ................................................................................................................... 9
3. SWOT ANALYSIS ..................................................................................................... 19
4. RISKS ......................................................................................................................... 20
5. VALUATION AND RECOMMENDATION ............................................................. 21
2
July 26, 2012
REGIONAL
MALAYSIA
SINGAPORE
OIL & GAS - EQUIPMENT SHORT TERM (3 MTH) LONG TERM
INDONESIA & SVS

THAILAND
PHILIPPINES
CHINA, HONG KONG Conviction
Notes from the Field Fields of gold

Petronass record capex and marginal field development have stirred
up major interest in Malaysias oil & gas sector. With 22 more fields
worth up to US$22bn up for grabs, things can only get more exciting
for the sector that remains at the heart of the countrys economy.
Figure 1: Petronas's capex, 2003-16F (RM bn)

Norziana Mohd Inon
70
T (60) 3 20849645
E norziana.inon@cimb.com
60
Capex quantum will be 50
intensified to outpace 40
rising costs, upgrade asset 30

integrity, enhance yield of
20
existing assets, drive
growth and venture into 10
more challenging, green 0
field plays. 2003 2005 2007 2009 2011 2012F 2014F 2016F
SOURCES: PETRONAS
Tan Sri Shamsul Azhar
Abbas, Petronas president
and CEO We remain Overweight on the sector, arrest the countrys production
which is the biggest beneficiary of the decline. The development is expected
Economic Transformation to keep the ball rolling for the sector,
Programme (ETP). Following the which contributed a substantial 36%
recent revision of our CY13 target to the governments revenue in 2011.
market P/E from 13x to 13.3x, we
raise our target prices by 0.7-2.4% for Three down, 22 more to go
all stocks except Perdana. Our top Three risk service contracts (RSCs)
picks are SapuraKencana for the big for the development of the Berantai
caps and Perisai for the small caps. field and the Balai and
Kapal-Banang-Meranti clusters have
RM300bn upstream boost to been awarded, giving the opportunity
reverse production decline for SapuraKencana and Dialog to
Highlighted Companies venture into exploration & production
Increasing energy demand continues
SapuraKencana to keep oil prices elevated, prompting (E&P). With 22 more marginal field
SapuraKencana is one of the worlds top five Petronas to develop fields that might RSCs worth US$17.6bn-22bn to be
integrated oil & gas service providers. The dished out, prospects for foreign oil
company is riding on a huge capex programme in have been considered economically
Malaysia and Brazil. It is working on Berantai unfavourable just a few years ago. To companies and their local partners
marginal field, which is an ETP project.
expand Malaysias hydrocarbon look promising.
Perisai resource base, Petronas has budgeted
Perisai has 10 assets which are fully utilised and RM300bn over the next five years, 19.3% 3-year EPS CAGR
on long-term charters with oil & gas majors. The We expect all-time net profit highs in
company is venturing into drilling and will take translating into an annual capex of
delivery of its first rig in Jul 14. It is also eyeing RM60bn, a new high. CY12-14 for Bumi Armada, Dialog,
marginal field opportunities. Perisai, Petronas Dagangan,
Dialog
Marginal field development is one of SapuraKencana and Wah Seong. This
Formerly a pure downstream player, Dialog has the ETP initiatives that have been put collective record performance
made a breakthrough upstream via its participation in place to unlock the numerous supports our robust 3-year sector EPS
in the Balai marginal field, which is an ETP
initiative. It is also developing the Pengerang tank
reservoirs in the Malay basin and CAGR of 19.3%.
terminal, another project under the ETP.
3
July 26, 2012
KEY CHARTS
Brent rebounded to above US$100/barrel 140

The Brent oil price has found support in Chinas plans
for economic stimulus measures. China is the world's 120
second-largest oil consumer after the US.
Weaker-than-expected macro economic numbers from 100
US$ / barrel
the country had earlier pressured crude prices. Supply
80
disruptions in the North Sea are also supporting Brent.
60
40
20
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
Oil & gas is the biggest ETP winner

The ETP unveiled on 21 Sep 2010 has provided a
substantial boost to Malaysias oil & gas sector, which is E&E
3%
Others
Oil, gas & energy
7%
one of the 12 national key economic areas. Commanding Wholesale & retail 52%
6%
52% of RM170bn in committed investments so far, the
oil & gas sector is the single largest beneficiary of the Tourism
ETP. 9%
Greater KL
23%
Marginal fields to reverse production

decline 800
Malaysias oil production has been on a declining trend

due to its maturing offshore reservoirs. Marginal field 600
'000 barrels per day
development is among Petronass core efforts to increase

hydrocarbon production and ensure Malaysias 400
long-term energy security.
200
0
1980 1984 1988 1992 1996 2000 2004 2008 9M11
and boost reserves

The countrys reserves of crude oil, condensate & natural 25
gas have been somewhat stagnant. Petronas targets to
extract 1.7bn barrels of oil and oil equivalent (boe)
Billion barrels of oil equivalent
20
through various initiatives that include marginal field
and deepwater field developments, which come under 15
various entry point projects in the ETP.
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
SOURCE: CIMB, COMPANY REPORTS
4
July 26, 2012
Figure 2: Sector comparisons

Bloomberg Price Target Price Market Cap Core P/E (x) 3-year EPS P/BV (x) Recurring ROE (%) EV/EBITDA (x) Dividend Yield (%)
Company Recom.
Ticker (local curr) (local curr) (US$ m) CY2011 CY2012 CAGR (%) CY2011 CY2012 CY2011 CY2012 CY2013 CY2011 CY2012 CY2011 CY2012
Bumi Armada BAB MK Outperform 3.95 4.87 3,643 32.2 20.2 30.7% 3.28 4.92 16.9% 19.4% 28.0% 15.4 11.0 0.6% 0.6%
Dialog Group DLG MK Outperform 2.37 2.95 1,796 32.1 27.0 19.7% 6.66 5.96 23.3% 24.9% 25.9% 19.7 14.2 1.9% 2.4%
Malaysia Marine & Heavy Eng MMHE MK Underperform 5.35 4.75 2,696 23.6 22.5 -13.7% 3.66 3.63 16.2% 16.2% 17.2% 19.9 14.0 1.6% 1.4%
Perdana Petroleum PETR MK Outperform 0.71 0.86 111 na 11.6 na 0.72 0.73 -6.2% 6.6% 7.8% 7.1 6.9 0.0% 0.0%
Perisai Petroleum PPT MK Outperform 0.89 1.53 237 21.7 8.1 96.5% 2.27 1.96 12.6% 26.0% 22.6% 14.7 10.4 0.0% 0.0%
Petronas Dagangan PETD MK Outperform 21.00 23.40 6,570 24.0 18.4 14.9% 3.13 2.84 14.0% 16.1% 16.0% 13.3 11.1 3.7% 3.6%
SapuraKencana Petroleum SAKP MK Outperform 2.39 2.97 3,766 27.1 25.6 39.0% 2.22 2.22 8.2% 8.8% 14.7% 19.4 19.3 0.0% 0.0%
Wah Seong Corp WSC MK Outperform 1.87 2.58 456 12.5 9.0 46.1% 2.57 2.41 23.0% 27.4% 27.3% 6.2 4.7 3.1% 3.8%
Malaysia average 25.0 19.9 19.3% 2.71 2.56 11.4% 13.3% 15.7% 15.3 13.4 2.3% 2.2%
ASL Marine ASL SP Outperform 0.56 0.80 188 9.1 7.7 10.5% 0.68 0.63 7.5% 8.5% 9.6% 5.9 5.0 3.1% 4.5%
CSE Global CSE SP Outperform 0.84 0.89 343 15.5 7.5 10.1% 2.11 1.66 14.3% 24.7% 23.5% 10.5 4.9 2.4% 5.4%
Ezion Holdings EZI SP Outperform 0.92 1.15 623 11.2 8.8 44.7% 1.95 1.45 19.5% 18.7% 25.7% 10.8 11.8 0.1% 0.1%
Ezra Holdings EZRA SP Outperform 0.97 1.38 755 16.7 14.4 3.5% 0.81 0.82 5.0% 5.6% 9.4% 15.8 11.9 1.9% 2.5%
Mermaid Maritime MMT SP Outperform 0.26 0.44 159 na 25.6 na 0.41 0.40 0.0% 1.6% 4.1% 4.0 2.9 6.8% 0.0%
Otto Marine OTML SP Underperform 0.09 0.08 210 na na -110.9% 0.54 0.61 -15.9% -5.0% 0.0% na 26.1 0.0% 0.0%
PEC Ltd PEC SP Underperform 0.58 0.63 117 6.9 16.9 -38.1% 0.72 0.71 10.6% 4.3% 4.5% 0.3 1.3 3.5% 1.7%
Rotary Engineering RTRY SP Underperform 0.51 0.61 228 9.2 14.4 -18.8% 1.00 0.99 11.2% 6.8% 10.4% 4.9 4.0 5.9% 4.0%
SembCorp Marine SMM SP Outperform 4.82 6.50 8,005 13.3 14.9 -1.6% 4.13 3.76 29.9% 26.4% 26.9% 9.4 10.4 6.7% 5.2%
STX OSV SOH SP Outperform 1.52 2.09 1,422 5.3 8.0 5.1% 2.46 2.24 59.0% 29.3% 24.2% 3.1 5.1 9.4% 4.9%
Swiber Holdings SWIB SP Outperform 0.57 0.79 274 7.5 5.8 55.6% 0.63 0.66 8.7% 11.2% 11.6% 6.9 7.6 0.0% 0.0%
Yangzijiang Shipbuilding YZJ SP Outperform 1.00 1.30 3,049 4.9 4.9 7.1% 1.50 1.22 33.8% 27.4% 20.2% 4.9 4.4 5.2% 5.1%
Singapore average 9.2 9.7 4.0% 2.05 1.81 23.5% 19.9% 18.9% 6.9 7.2 5.9% 4.5%
PTT PTT TB Outperform 318.0 453.0 28,717 8.6 7.2 17.3% 1.71 1.54 21.8% 22.5% 21.3% 4.2 4.0 2.8% 2.8%
PTT Exploration & Production PTTEP TB Underperform 153.0 170.0 16,059 11.1 9.4 9.7% 2.54 1.78 26.2% 23.9% 20.3% 4.7 3.7 3.2% 3.8%
Thai Oil TOP TB Neutral 59.25 69.00 3,821 8.1 8.7 35.7% 1.52 1.44 20.5% 17.0% 17.8% 5.3 6.1 6.6% 6.1%
Thailand average 9.2 8.0 16.6% 1.90 1.61 22.7% 22.4% 20.7% 4.5 4.0 3.2% 3.4%
Wintermar Offshore Marine WINS IJ Outperform 405.0 590.0 152 10.8 8.5 5.6% 1.21 1.06 12.2% 13.3% 14.5% 6.5 6.1 0.0% 0.0%
Indonesia average 10.8 8.5 5.6% 1.21 1.06 12.2% 13.3% 14.5% 6.5 6.1 0.0% 0.0%
Average (all) 10.1 9.0 13.0% 2.01 1.73 21.5% 20.9% 19.9% 5.4 5.0 3.6% 3.5%
SOURCES: CIMB, COMPANY REPORTS
Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends
5
July 26, 2012
Fields of gold
Table of Contents
1. BACKGROUND p.6 1. BACKGROUND
2. OUTLOOK p.9
3. SWOT ANALYSIS p.19 1.1 Going big on small fields
4. RISKS p.20 Over the past few years, we have released several major oil & gas sector reports.
5. VALUATION AND RECOMMENDATIONS p.21
27 Apr 2006: Hunting overseas We zoomed in on companies that have
made their mark not only at home but in foreign markets as well.
20 Jul 2007: All pumped up We focused on the revival of the
Notes from the Field
downstream segment that had played second fiddle to the upstream
segment.
The new (field) discoveries
and the efforts on 6 Aug 2008: Lets get defensive - We wrote on the increasing number of
Malaysian companies venturing into asset ownership as they break away
enhanced oil recovery and from low-margin services and volatile project-basis type of operations.
marginal fields are already
showing renewed interest 6 Aug 2009: Supply chain flexes its muscle We explored the oil & gas
supply chain, which transforms natural resources into finished products
and attracting investments that are ultimately delivered to customers.
in Malaysias upstream
sector. Ultimately, this will 14 Jul 2010: Get ready for contracts - We highlighted the list of contracts
that was up for grabs.
result in a more robust
industry, creating more 20 Jul 2011: Cashing in on the ETP lock, stock and barrel We took a
spin-off benefits to local closer look at the ETP, which has put oil & gas stocks in the spotlight.
service providers. In this report, we look at the development of marginal fields, which is aimed at
Petronas, in an interview with
reversing Malaysias sliding oil & gas production (see page 2) and boosting the
Pemandu somewhat stagnant reserves (see page 2). The development is expected to keep
the excitement going for a sector that is an important revenue generator (Figure
3), particularly through income tax, royalty, export duty, sales tax and dividends
from national oil company Petronas (Figure 4). Furthermore, the development
is in line with the governments plan for the sector as outlined in the 10th
Malaysia Plan, which is to plow more of Malaysias resources into energising the
local oil & gas sector and developing domestic reserves after years of aggressive
overseas push. Later in this report, we also touch on enhanced oil recovery, an
initiative aimed at extracting more from existing fields.
Figure 3: Contribution of oil & gas activities to governments revenue, 2000-11 (%)
45
40
35
30
25
20
15
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
SOURCES: BNM, MOF
6
July 26, 2012
Figure 4: Petronas's payments to government, 2001-9M11 (RM bn)

80
60
40
20
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 9M11
SOURCES: PETRONAS
1.2 An ETP initiative

Jointly created by the public and private sectors, the ETP is a comprehensive
effort that will transform Malaysia into a high-income nation by 2020.
According to Performance Management & Delivery Unit (Pemandu), the oil, gas
& energy national key economic area (NKEA) is targeted to more than double
the sectors total gross national income (GNI) contribution from RM110bn in
2009 to RM241bn by 2020. Commanding 52% of the RM170bn in committed
investments so far, the oil, gas & energy sector is the single largest beneficiary of
the ETP (see page 2).
The ETP outlines 12 entry point projects (EPP) that are expected to create
RM64bn worth of GNI contribution and at least 47,156 jobs by 2020. The
development of marginal fields comes under EPP2 (Figure 5). EPP is defined as
an iconic project that can generate results with strong multiplier effects.
Figure 5: EPPs for oil, gas and energy NKEA

2020 GNI (RM m) No. of jobs
EPP1: Rejuvenating existing fields through enhanced oil recovery 8,470 411
EPP2: Developing small fields through innovative solutions 8,470 411
EPP3: Intensifying exploration activities 8,470 411
EPP4: Building a regional oil storage & trading hub 1,626 790
EPP5: Unlocking premium gas demand in Peninsular Malaysia 2,404 N/A
EPP6: Attracting MNCs to bring a sizeable share of their global operations to Malaysia 6,125 20,000
EPP7: Consolidating domestic fabricators 4,109 5,000
EPP8: Developing engineering, procurement and installation capabilties & capacity through strategic partnerships & JVs 4,029 15,000
EPP9: Improving energy efficiency 13,926 N/A
EPP10: Building up solar power capacity 458 1,906
EPP11: Deploying nuclear energy for power generation 212 2,637
EPP12: Tapping Malaysia's hydroelectricity potential 5,694 590
Total 63,991 47,156
SOURCES: PEMANDU
1.3 Share price momentum picks up

In the stock market, following strong outperformance in 2011 when the sector
provided a blazing weighted return of 30% compared with only a 0.8% gain for
the FBM KLCI, the share prices of oil & gas stocks got off to a slow start in 2012.
Major contract awards for listed companies were few and far between as most
works were design and engineering, which benefitted foreign companies, such
as Australias WorleyParsons and USs CB&I, which has secured a Petronas
contract for the engineering design of the refinery and petrochemicals
integrated development (Rapid) project in Johor.
7
July 26, 2012
The share prices have since recovered from the lull as expectations of major
contract wins in 2H12 build up. On a weighted average basis, share prices have
advanced 7.8% YTD, higher than the 6.8% increase in the FBM KLCI, thanks to
star performer Petronas Dagangan (PETD MK, Outperform) (Figure 6).
Figure 6: Share price performance of Malaysias listed oil & gas companies, YTD
Company Bloomberg Price as at Price as at Difference No. of Market Weightage Weighted
code 31-Dec-11 25-Jul-12 YTD shares cap. return
(RM) (RM) (%) (m) (RM m) (%) (%)
Petronas Dagangan PETD MK 17.37 21.00 20.9 993.5 20,863 29.1 6.1
SapuraKencana (listed on 17 May) KEPB MK 2.24 2.39 6.7 5,004.0 11,960 16.7 1.1
Bumi Armada BAB MK 4.08 3.95 (3.1) 2,928.5 11,567 16.2 (0.5)
MMHE MMHE MK 5.55 5.35 (3.6) 1,600.0 8,560 12.0 (0.4)
Dialog Group DLG MK 2.38 2.37 (0.3) 2,406.1 5,702 8.0 (0.0)
Shell Refining SHELL MK 9.04 9.36 3.5 300.0 2,808 3.9 0.1
Dayang Enterprise DEHB MK 1.79 2.01 12.4 1,083.5 2,178 3.0 0.4
Wah Seong Corp WSC MK 2.04 1.87 (8.3) 774.9 1,449 2.0 (0.2)
Petron Malaysia PETRON MK 3.44 3.30 (3.9) 270.0 891 1.2 (0.0)
Perisai Petroleum PPT MK 0.74 0.885 19.6 851.8 754 1.1 0.2
Hibiscus HIBI MK 0.95 1.67 76.7 437.9 731 1.0 0.8
KNM Group KNMG MK 0.99 0.63 (36.4) 1,001.1 631 0.9 (0.3)
Alam Maritim AMRB MK 0.76 0.53 (30.3) 787.2 417 0.6 (0.2)
Perdana Petroleum PETR MK 0.79 0.71 (9.6) 495.1 352 0.5 (0.0)
Petra Energy PENB MK 1.14 1.63 43.5 214.5 350 0.5 0.2
Ramunia RH MK 0.35 0.435 26.1 662.8 288 0.4 0.1
Tanjung Offshore TOFF MK 0.76 0.965 27.0 292.6 282 0.4 0.1
Deleum DLUM MK 1.01 1.86 84.3 150.0 279 0.4 0.3
Scomi Group SGB MK 0.28 0.215 (23.2) 1,193.7 257 0.4 (0.1)
Pantech PGHB MK 0.46 0.565 22.8 452.7 256 0.4 0.1
Daya Material DAYA MK 0.20 0.195 - 1,234.0 241 0.3 0.0
Uzma UZMA MK 1.13 1.38 22.4 132.0 182 0.3 0.1
Sealink SELI MK 0.44 0.34 (22.7) 500.0 170 0.2 (0.1)
SAAG Consolidated SAAG MK 0.07 0.055 (15.4) 2,171.8 119 0.2 (0.0)
APB Resources APBB MK 0.89 0.88 (1.6) 112.9 99 0.1 (0.0)
Borneo Oil BORNO MK 0.36 0.505 40.3 179.4 91 0.1 0.1
Handal Resources HDL MK 0.41 0.445 9.6 160.0 71 0.1 0.0
Sumatec Resources SMTC MK 0.22 0.21 (4.7) 214.4 44 0.1 (0.0)
Kejuruteraan Samudra KSTB MK 0.15 0.18 20.0 143.0 26 0.0 0.0
Total 71,617 100.0 7.8
Average 9.4
FBM KLCI 1,530.73 1,635.09 6.8
SOURCES: BLOOMBERG
The oil & gas stocks that we cover have tracked the sector. On a weighted
average basis, our portfolio has given a 7.1% return, higher than the 6.8%
increase chalked up by the benchmark index. Our portfolios outperformance is
supported by Petronas Dagangan, SapuraKencana (SAKP MK, Outperform) and
Perisai (PPT MK, Outperform) (Figure 7). We expect a further re-rating in share
prices as major contracts, in particular marginal field jobs, are handed out in
2H12. Already, Thailands Coastal Energy has snagged Malaysias third marginal
field contract, inking the deal in early-Jul.
Figure 7: Share price performance of our oil & gas portfolio, YTD
Company Bloomberg Price as at Price as at Difference No. of Market Weightage Weighted
code 31-Dec-11 25-Jul-12 YTD shares cap. return
(RM) (RM) (%) (m) (RM m) (%) (%)
Petronas Dagangan PETD MK 17.37 21.00 20.9 993.5 20,863 33.9 7.1
SapuraKencana (listed on 17 May) KEPB MK 2.24 2.39 6.7 5,004.0 11,960 19.4 1.3
Bumi Armada BAB MK 4.08 3.95 (3.1) 2,928.5 11,567 18.8 (0.6)
MMHE MMHE MK 5.55 5.35 (3.6) 1,600.0 8,560 13.9 (0.5)
Dialog Group DLG MK 2.38 2.37 (0.3) 2,406.1 5,702 9.3 (0.0)
Wah Seong Corp WSC MK 2.04 1.87 (8.3) 774.9 1,449 2.4 (0.2)
Perisai Petroleum PPT MK 0.74 0.89 19.6 851.8 754 1.2 0.2
Alam Maritim AMRB MK 0.76 0.53 (30.3) 787.2 417 0.7 (0.2)
Perdana Petroleum PETR MK 0.79 0.71 (9.6) 495.1 352 0.6 (0.1)
Total 61,624 100.0 7.1
Average (0.9)
FBM KLCI 1,530.73 1,635.09 6.8
SOURCES: BLOOMBERG
8
July 26, 2012
2. OUTLOOK
2.1 What is a marginal field?
A marginal field is a field that has low recoverable reserves of around 30m
barrels in shallow water. It is usually associated with small pockets of
hydrocarbons that have a plateau of a few years. Because of its size, a marginal
field may not yield returns that are attractive enough to Petronas and its
production-sharing contract (PSC) partners, especially in light of significant
deepwater field discoveries in local waters over the past decade (Figure 8).
However, should technical or economic conditions change, a marginal field
might become a commercial field. To this end, a new set of tax incentives has
been put in place.
Figure 8: Malaysia's deepwater oil & gas discoveries, Jul 2002-Feb 2012
Announcement Well Substance Depth (ft) Working interest ratio
date
30-Jul-02 Kikeh (Sabah) Oil 4,400 80:20 (Murphy Oil : Petronas Carigali)
27-Aug-03 Kikeh Kecil #1 (Sabah) Oil 4,460 80:20 (Murphy Oil : Petronas Carigali)
1-Nov-03 Bunga Kamelia (Peninsular) Gas 6,792 50:50 (Shell : Petronas Carigali)
8-Mar-04 Gumusut-1 (Sabah) Oil 3,281 40:40:20 (Shell : Conoco : Petronas Carigali)
27-May-04 Kenarong #1 (Peninsular) Oil & gas 225 75:25 (Murphy Oil : Petronas Carigali)
9-Jun-04 Kakap #1 (Sabah) Oil & gas 3,037 80:20 (Murphy Oil : Petronas Carigali)
20-Aug-04 M3 South (Sarawak) Gas / Condensate n.a. 70:30 (Shell : Petronas Carigali)
7-Sep-04 Bunga Zetung-1 (Peninsular) Gas 6,155 50:50 (Shell : Petronas Carigali)
14-Sep-04 Senangin #1 (Sabah) Oil 4,695 80:20 (Murphy Oil : Petronas Carigali)
14-Sep-04 Pertang #1 (Peninsular) Gas 224 75:25 (Murphy Oil : Petronas Carigali)
22-Sep-04 Malikai-1 (Sabah) Oil 1,854 40:40:20 (Shell : Conoco : Petronas Carigali)
28-Mar-05 Rompin #1 (Sarawak) Oil & gas 6,021 85:15 (Murphy Oil : Petronas Carigali)
14-Apr-05 Bumi South-1 (Peninsular) Gas 5,413 50:50 (Shell : Petronas Carigali)
29-Jun-05 Endau #1 (Sarawak) Oil & gas 8,275 85:15 (Murphy Oil : Petronas Carigali)
29-Jun-05 Kerisi #1 (Sabah) Oil 11,234 85:15 (Murphy Oil : Petronas Carigali)
10-Oct-05 Ubah-2 (Sabah) Oil & gas 4,692 35:35:30 (Shell : Conoco : Petronas Carigali)
18-Jan-06 Pisagan-1A (Sabah) Oil & gas 4,806 35:35:30 (Shell : Conoco : Petronas Carigali)
3-Apr-06 Bunga Dahlia Channel-1 (Peninsular) Gas 7,415 50:50 (Shell : Petronas Carigali)
29-Jan-07 Rotan #1 (Sabah) Gas 7,024 80:20 (Murphy Oil : Petronas Carigali)
14-Feb-11 NC3 (SK316 block, Sarawak) Gas 13,123 Not available
14-Feb-11 Spaoh-1 (SK306 block, Sarawak) Oil & gas 9,843 Not available
28-Jul-11 Zuhal East-1 (Samarang Asam Paya block, Sabah) Gas 7,662 Solely Petronas
28-Jul-11 Menggatal-1 (Block SB312, Sabah) Gas 6,888 60:40 (Petronas Carigali : Kuwait Finance Petroleum)
15-Nov-11 Wakid-1 (Block 2G-2J, Sabah) Oil 10,922 Solely Petronas
13-Feb-12 Kasawari (SK316 block, Sarawak) Gas 10,483 Not available
13-Feb-12 NC8SW (SK316 block, Sarawak) Gas 12,638 Not available
SOURCES: VARIOUS
2.2 Tax incentives improve project viability

On 29 Jun 2011, the Petroleum Income Tax (Amendment) Bill 2011 was passed
to unlock and monetise stranded oil & gas resources. This bill details the
incentives aimed at developing less capital-intensive marginal fields and
improving project viability: 1) reduction of tax rate from 38%, a level that was
set in 1998, to 25%, and 2) waiver of export duty on oil produced and exported
from the marginal field development (see the section on RSC offers greater
incentives than PSC). The previous duty of 10% was also set in 1998. This new
tax regime was proposed by Petronas. Other perks include the acceleration of
capital allowance from 10 years to five years for marginal fields and investment
allowance for projects requiring high capex and technical skills (Figure 9).
Figure 9: Tax incentives for marginal field development

1 A reduced tax rate of 25% from 38% to improve commerciality of developments
2 Investment tax allowance of 60-100% of capex will be deducted against statutory income to encourage
development of capital intensive projects
3 An accelerated capital allowance of up to five years (from ten years) where full utilisation of capital cost
deducted could improve project viability
4 Qualifying exploration expenditure will be allowed for transfer between non-contiguous petroleum
agreements with the partnership or sole proprietor to enhance contractors' risk-taking attitude
5 A waiver of export duty will be given on oil produced and exported from marginal fields
SOURCES: PEMANDU
9
July 26, 2012
The government has to sacrifice RM8.1bn in the form of revenue foregone from
the tax cut, export duty waiver and other tax measures. However, the benefits
are estimated to far exceed the drawbacks. The government stated that by
lowering risks and increasing the rewards for investment, the tax initiatives are
expected to contribute additional petroleum-generated revenue of more than
RM50bn over the next 20 years. In the process, these measures will enable the
private sector to play a bigger role in economic development.
With the right expertise and incentives, the development of a marginal field can
take less than 24 months. As a deepwater field may take up to five years to be
developed, the development of marginal fields is targeted at arresting the
projected long-term decline in domestic oil & gas production (Figure 10). As at
Mar 11, Malaysias production stood at 630,000 barrels per day (bpd), 17%
lower than the peak of 762,000 bpd recorded in 2004 (see page 2).
Figure 10: Malaysia's projected gas production, 2010-25 (bn standard cu ft per day)
7
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
SOURCES: PEMANDU
2.3 Part of Petronass massive RM300bn capex

To expand Malaysias hydrocarbon resource base, Petronas has budgeted
RM300bn over the next five years, higher than the earlier target of RM250bn,
as the national oil company has taken into account plans for M&As and the
US$20bn Rapid project. The revised capex translates into annual capex of
RM60bn, which is a new high (Figure 1). This will go towards replacing and
refurbishing ageing oil & gas producing assets in Malaysia. 60% of Petronass
major producing fields in the country have an average age of 19-28 years.
Petronas also aims to recover 1.7bn boe over some 20 years by 1) enhancing oil
recovery in existing fields and developing marginal fields, and 2) improving its
oil recovery ratio from 26% currently to 40% over the next five years. By
comparison, the recovery ratio in the North Sea is 42-45%. A recovery ratio of
26% means that for every 100 barrels of oil in the ground, only 26 barrels are
brought to the ground while the remaining 74 barrels are undiscovered.
For the development of marginal fields, Petronas has so far awarded three risk
service contracts (RSC), namely for Berantai field in Jan 11, the Balai cluster in
Aug 11 and the Kapal, Banang and Meranti (KBM) cluster in Jul 12 (Figure 11).
Berantai is being developed by UKs Petrofac and SapuraKencana while the
contractor group for Balai consists of Australias Roc Oil, Dialog (DLG MK,
Outperform) and Petronass wholly-owned E&P subsidiary Petronas Carigali,
which together formed a JV company named BC Petroleum based in Kuala
Lumpur. Thailands Coastal Energy, which has a dual listing in London and
Toronto, will develop KBM with a local partner that has yet to be identified. The
contract for Sepat marginal field was awarded to Petrofac much earlier in
late-2010 but it is a turnkey contract, not an RSC.
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July 26, 2012
Figure 11: RSCs awarded so far

Date Field/cluster Substance Contract value Contract International oil company Malaysian contractor
period
31-Jan-11 Berantai (Peninsular) Gas US$800m excluding FPSO 8 years UK's Petrofac (50%) SapuraKencana (50%)
16-Aug-11 Balai (Sarawak) Oil & gas US$850m-950m 15 years Australia's Roc Oil (48%) Dialog (32%), Petronas Carigali (20%)
6-Jul-12 Kapal, Banang & Meranti Oil Not disclosed Not disclosed Thailand's Coastal Energy (60-70%) Not disclosed (30-40%)
(Peninsular)
SOURCES: VARIOUS
2.4 RSC offers greater incentives than PSC

Through PSCs, Petronas Carigali works alongside a number of multinational
petroleum corporations to explore, develop and produce oil & gas in Malaysia.
Malaysia has approximately 615,100 sq km of acreage available for oil & gas
exploration. Of these, 36% is currently covered by PSCs. Exploration drilling by
the PSCs has resulted in the discovery of 163 oil fields and 216 gas fields.
After the PSCs, Petronas initiated a new wave in upstream licensing by
introducing RSCs for the marginal fields (Figure 12). The launch of the RSCs is
to encourage marginal field developments. Under the RSC structure, Petronas
retains field ownership while the contractors, both local and foreign service
providers, stand to receive a fee on top of the upfront investment in the field.
The reserve size of each of the marginal fields is at around 30m barrels of oil
equivalent and, therefore, may not appeal to supermajors but for a smaller
player like Roc, which is working at Berantai, it would mean a doubling of the
companys reserves overnight, said CEO Alan Linn. Moving forward, the PSC
model will be used in conventional fields to draw the oil majors while the RSC
model will be used to attract smaller players.
Figure 12: PSC vs. RSC

Terms PSC RSC
Production Contractor shares production entitlement from cost recovery and profit 100% production volume belongs to Petronas
entitlement oil or gas
Cost recovery / Contractor recovers the costs in kind up to specified percentage of Petronas reimburses contractor the cost in cash from the allocated revenue
reimbursement production of the field
Contractor's Contractor is entitled to a specified profit share from the remaining Petronas pays contractor an agreed fee for the service provided subject to
profit production after royalty and cost recovery actual performance. Upside potential exists depending on both production
and capex performance
Contractor's Under Petroleum Income Tax Act (38%) Under Corporate Income Tax Act (25%)
tax
Abandonment Contractor pays abandonment and research levy Abandonment obligation remains with Petronas and there is no provision for
research levy
SOURCES: VARIOUS
While Petronas has broken new ground for upstream licensing in the region by
introducing the RSC, the model is believed to have been pioneered by Iraq.
Petronas itself is a RSC developer and producer in Iraq where its role is the
same as that of SapuraKencanas and Dialogs in the Berantai and Balai
contracts, respectively. In Iraq, oil majors, which include BP, Shell, ExxonMobil
and Total, do not own the concessions and instead operate on the basis of RSC
instead of PSC. In our view, the RSC framework actually offers much greater
incentives than the standard terms of a PSC (Figures 13 and 14) and is more
suitable for the development of Malaysias marginal fields for several reasons:
Fees and performance bonuses
The development cost of Berantai is pegged at US$1bn, including US$200m for
the supply of a floating production, storage and offloading (FPSO) vessel, while
that for Balai is US$850m-950m. The RSC tenure ranges from eight years for
Berantai to 15 years for Balai. The developers will have to pay a fee upfront
according to their equity shares and will receive payment upon the first oil or
gas. They will also draw a remuneration fee calculated on a per barrel basis of
up to an agreed ceiling, in addition to receiving reimbursements on operational
and capital expenditures.
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July 26, 2012
Petronas CEO Tan Sri Shamsul Azhar Abbas was quoted as saying that the
developers will earn a fee that will be adequate to cover the service and
infrastructure that they provide to extract the oil with fair return. In addition,
the developers will be rewarded with a performance bonus, which will be
capped at a certain level. Therefore, risks appear limited if there is no issue with
execution, leaving potential threats to come from indirect factors, such as high
borrowing costs and an environmental incident. See Figure 13 on how the
income from marginal field development is split among the government,
Petronas and the contractors.
Figure 13: RSC flow chart
SOURCES: ROC OIL
Limited risks
Risks faced by the developers are limited. The players are more likely to recoup
their investments and make a guaranteed profit as the discovery of petroleum
resources is a sure bet in marginal fields, which are essentially discovered fields.
SapuraKencana stressed that there are hydrocarbons at Berantai and that not
finding it should not be a concern. What is more important is the design and
build of the system and how much oil or gas can be produced and at what rate.
Lower tax rate
Following the amendment of the Petroleum Income Tax Bill in Jun 2011,
companies operating under the RSC licensing now pay a tax rate of 25%,
substantially lower than the 38% tax rate under the PSC structure (Figures 13
and 14). The RSC operators also enjoy a waiver of export duty on oil produced
and exported from the marginal fields.
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July 26, 2012
Figure 14: Key RSC terms for Balai cluster
SOURCES: ROC OIL
No exposure to oil price volatility

The RSC model allows local service providers to do what they do best (i.e.
transport & installation and fabrication) and in the process, upgrade themselves
to producers. All this is achieved without the players having to take on the risks
that come with field ownership and oil price volatility since Petronas remains
the owner of the fields. The national oil company will also shoulder the
economic and environmental responsibilities in relation to abandonment when
the fields are no longer in production. This is clearly spelled out in the RSC
terms for Balai (Figure 14).
Building up local capabilities
With the introduction of the RSC, Petronas has opened up to international
contractors to cope with the frenzied pace of upstream oil & gas development in
Malaysia. The RSC is widely considered an avenue for more foreign
participation in the development of domestic oil & gas fields. Also, the
government is keen to encourage partnerships between Malaysian and
international players to plug what have been flagged as considerable gaps in
engineering capabilities. In Mar 12, Tan Sri Shamsul Azhar said: Recently, we
opened up a data room involving 22 small fields. Quite a number of
independent foreign companies came to take a look at the data.
Over the years, local players have acquired the expertise to execute 60-70% of
works in the life cycle of an oil field, thanks to Petronass efforts to develop local
talent. Through the introduction of marginal field development, local companies
will learn from their foreign partners about how to provide end-to-end solutions
with the target of offering development and production services to clients in
Malaysia and the region as well as other aspects in the value chain, i.e.
subsurface works and front-end engineering design (FEED). This is why it is
important for local companies to team up with those which have the experience,
in this case, Petrofac, Roc and Coastal. Petrofac has gained substantial
experience in marginal fields from its pursuits in the North Sea.
Just a fraction of national reserves and production
Malaysia has 106 marginal oil fields containing 580m boe and Petronas has
plans to develop 25% of the fields. 580m boe accounts for a mere 2.7% of
Malaysias reserves of 21.4bn boe as at 1 Jan 12 (see page 2). Also, Berantais
production is expected to be a maximum of 28,000 bpd, just 4.4% of Malaysias
production of 630,000 bpd as at Mar 11 (see page 2). At Sepat, the output is
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July 26, 2012
expected to hit 20,000 bpd. These do not justify commercialising development

of the fields under PSC terms.
2.5 Updates on Berantai, Balai and Sepat
Berantai
On 31 Jan 11, SapuraCrest and Kencana became the first two home-grown
companies to participate in marginal field development and were awarded
Petronass first ever RSC. The companies, each with a 25% stake, signed a deal
to develop and operate Berantai jointly with Petrofac, which holds 50% equity in
the development, for a period of eight years effective 31 Jan 11. On 15 May 12,
SapuraCrest and Kencana merged to create SapuraKencana, which now holds a
50% stake in the RSC.
Berantai is located about 150km offshore Trengganu. The development of the
field involves the provision of 1) a wellhead platform with 18 wells and a related
pipeline linking the platform to another existing platform, and 2) an FPSO
which was built by Keppel (KEP SP, Outperform). SapuraKencana undertook
two packages, namely the transport & installation portion and the fabrication of
the wellhead platform.
As agreed with Petronas, the contractor group targets first gas by Aug 12, which
would be four months later than the earlier target due to the delayed delivery of
the FPSO to the project site. However, some industry observers said that a
19-month delivery from the start of the project remains impressive.
SapuraKencana has been given three KPIs: 1) deliverability: production of
10,000 bpd and 90m cu ft of gas per day. This should not be a problem as the
production is expected to hit a maximum of 28,000 bpd. 2) production: first gas
is targeted to be produced within Petronass approved time frame. 3) project
cost: agreed by both Petronas and the consortium members. SapuraKencana
said: If we achieve all our targets, we will be paid a fee above the cost of the
project.... If we do not perform or achieve the targets (i.e. lower production rates
or cost overruns), it will be at our cost, which means our margins will be
eroded.
Balai
On 16 Aug 11, a contractor group consisting of Dialog (32%), Petronas Carigali
(20%) and Roc (48%) signed a 15-year contract with Petronas to develop and
produce petroleum in the Balai cluster located offshore Bintulu, Sarawak. The
cluster consists of the Balai, Bentara, Spaoh and West Acis fields. Roc views its
initial entry into Malaysia as an important first step in pursuing its strategy to
grow its business in Southeast Asia.
The Balai development and production will be carried out in two phases:
The pre-development phase began in 2HCY11 and is expected to take up to
18 months. Pre-development activities include 1) geological and geophysical
works, 2) drilling and testing of appraisal wells, and 3) procurement of
related facilities and equipment. The estimated cost is US$200m-250m, of
which Roc has contributed US$30m so far.
Upon the successful completion of the pre-development phase and
agreement on the economic viability of the fields, the contractor group will
submit a field development plan for all or some of the fields and progress to
the development phase. Commercial production is expected to start 24
months from the commencement of the development programme.
Development activities include 1) drilling of wells, 2) installation of
platforms, topsides and pipelines, and 3) tie-in of new facilities to Petronas
Carigalis existing infrastructure. The estimated cost is US$650m-700m.
The development is on track. BC Petroleum, the joint venture between Roc and
its Malaysian partners, has secured US$162m financing for work on the
pre-development phase. The loan is jointly provided by CIMB, Sumitomo Mitsui
Banking and Standard Chartered. Work performed since the beginning of the
year include the fabrication of four wellhead platforms and the conversion of an
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July 26, 2012
oil tanker into an early production vessel at Keppels yard. Test production will
commence as early as this Oct, 14 months after the signing of the RSC. The
pre-development phase is expected to be completed by Feb 13.
Kapal, Banang and Meranti (KBM)
In Jul 12, Coastal entered into a contract with Petronas for the development of
the KBM cluster of small fields located offshore Peninsular Malaysia. The
company is currently finalising an arrangement for a Malaysian company to
participate in the contract for a 30-40% interest. The contract value has not
been disclosed.
Coastal will develop the fields using mobile offshore production units (MOPU)
and floating storage and offloading (FSO) vessels, similar to the method used to
develop its assets in offshore Thailand. A total of seventeen wells will be drilled
with ten planned at Kapal, four at Banang and three at Meranti. First oil from
Kapal is scheduled within a year, followed by production at Banang a year later.
Sepat
Petronas signed up Petrofac for the development of Sepat marginal field in
end-2010, earlier than the Berantai award in Jan 11. Petrofac was entrusted with
the task of fast-tracking first oil from Sepat with the target of end-2011 through
a project worth an estimated US$250m-280m. In Jan 12, Petrofac confirmed
that first oil had flowed at Sepat. Unlike Berantai and Balai, which fall under the
RSC structure, Sepat is a turnkey contract.
Petrofac undertook the engineering, procurement, construction, installation and
commissioning (EPCIC) for the full scope of the early production system in
water depths of approximately 65m. The EPCIC comprises a MOPU, a FSO
facility for the early production of 20,000 bpd and all interconnecting subsea
pipelines. These facilities mirror those of the Cendor Phase 1 development,
which was also undertaken by Petrofac on behalf of Petronas in record time
under the PSC framework.
At Sepat, Petrofac was assisted by Bumi Armada (BAB MK, Outperform), which
supplied the FSO unit, and pre-merger Kencana, which added the processing
equipment to the FSO unit. The FEED work was carried out at Petrofacs
specialist office in Woking, UK.
2.6 Who will secure future RSCs?
The RSC structure requires foreign companies to find local partners to form a
consortium so that there is a transfer of technology and knowledge in the
process. As with most oil & gas producing countries, Malaysia has set out local
content requirements to protect domestic interests. Foreign companies
participating in the marginal field development are required to have at least
30% local equity content. The foreign players will look for local partners that
can fulfill the needs of a particular project, such as required expertise and
capabilities, track record and financial abilities. According to an industry source,
Petronas will also need to sign off on the local partners selected by the foreign
companies. The local partners have to take part in the contracts fully.
As mentioned earlier, Petronas has plans to develop 25% of Malaysias 106
marginal fields containing 580m boe in total. With 22 developments to be
awarded after Sepat, Berantai, Balai and KBM and assuming project value of
US$800m-1bn per development, US$17.6bn-22bn (RM56.1bn-70.1bn) worth of
marginal field projects are still up for grabs.
Who will get the next marginal field contract is anybodys guess. Bumi Armada,
Perisai, Petra Energy (PENR MK, Not Rated) and Puncak Niaga (PNH MK,
Neutral) have expressed interest to participate in upstream ventures while TH
Heavy Engineering (formerly Ramunia) (RH MK, Not Rated), together with
Petra, is said to be one of the contenders for Coastals local partner role at KBM.
Malaysia Marine and Heavy Engineering (MMHE MK, Underperform) had
explored the possibility earlier but we understand that it is not a priority at the
moment. Meanwhile, existing players, i.e. SapuraKencana, Dialog, Petrofac and
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July 26, 2012
Roc, are looking to add more marginal fields under their belts. Below we look at
eight local companies that may clinch the coming marginal field deals with
Petronas.
Bumi Armada
Bumi Armada plans to bid for two marginal field contracts and is currently in
talks with international oil companies. Marginal field development is not a
totally new area for Bumi Armada. Last year, the company was involved in the
development of Sepat via a turnkey project that called for the supply of an FSO.
However, for its future marginal field jobs, we understand that the company
prefers to have equity participation (similar to SapuraKencanas role in Berantai
and Dialogs role in Balai) and not merely a one-off turnkey function. Bumi
Armada is headed by CEO Hassan Basma, who was included in TradeWinds
publications list of the global shipping industrys 100 most influential people in
Jun 12.
The potential foreign partners remain unidentified but we understand that one
of them could be Australias Apache, a marginal field specialist for which Bumi
Armada is currently supplying an FPSO in a 4+4, RM1.5bn deal inked last year.
As at 31 Mar 11, Bumi Armada had a cash balance of RM1.1bn and net gearing of
0.5x.
Dialog (with Roc)
Roc first started looking at Malaysia two years ago just when Petronas changed
its management team and began refocusing on boosting domestic production.
Now armed with Balai, the company has already exited New Zealand to focus on
Malaysia, China and Australia. It will also sell its UK assets if the right
opportunity in the region comes along, CEO Alan Linn told an industry
conference earlier this month.
Test production from Balai is expected to start within months with full field
development to be decided next year. Roc and its partner Dialog have made it
clear that their JV company BC Petroleum is actively pursuing other Malaysian
marginal field opportunities following its Balai win. On 5 Jul 12, Roc told
Upstream newspaper that it is negotiating with Petronas for eight more fields.
Long known as a downstream player, Dialog ventured upstream in a big way
through its involvement in Balai. Within the oil & gas sector, the company is
currently the biggest beneficiary of the ETP, thanks to its work in Balai and the
Pengerang tank terminal. Chairman Dr. Ngau Boon Keat leads the team
responsible for transforming Dialog from a pure contractor into the marginal
field and tank terminal operator that it is today. Dr. Ngau is one of Petronass
pioneer engineers in 1970s and is dubbed one of the national oil companys
young Turks.
As at 31 Mar 12, Dialog was in a net cash position and had cash balance of
RM626m. In Feb 12, the company raised RM476m from a rights issue, its first
equity fundraising ever. Another RM476m will be raised from the full conversion
of warrants that will expire in five years time.
MMHE
In early 2010, rival bids for Sepat were believed to have come from Roc and
Frances Technip, which was reported to have partnered MMHE, in which the
latter has an 8.5% stake. The turnkey contract for Sepat was awarded to Petrofac
later that year.
MMHE is 66.5%-controlled by MISC (MISC MK, Neutral), which in turn is
62.7%-held by Petronas. MMHEs CEO Dominique de Soras was an employee of
Technip.
We understand that MMHE is still keen to explore marginal field development
but this is not the companys priority at the moment. We believe high on the
fabricators agenda is the completion of the Gumusut-Kakap platform that has
been delayed until next year. The platform is a centerpiece structure required in
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July 26, 2012
the deepwater production of Shells Gumusut and Kakap fields in offshore

Sabah. As at 31 Mar 12, MMHE was debt free and had cash of RM1.8bn.
SapuraKencana (with Petrofac)
Petrofac was awarded back-to-back the turnkey contract for Sepat and the RSC
for Berantai. All eyes are on Berantai and the Petrofac-SapuraKencana JV
because the field is expected to set the benchmark for other RSCs. With Berantai
hitting first gas by next month, the JV is already bidding for at least one RSC.
Run jointly by executive vice chairman Dato Mokhzani Mahathir and CEO
Dato Seri Shahril Shamsuddin, who collectively own 35% equity,
SapuraKencana is in top form. Prior to the completion of the merger on 15 May
12, each company had bagged a string of local and international contracts,
which powered both companies to record profits. Post merger, we expect the
combined profits to allow SapuraKencana to scale new net profit highs, thanks
to Berantai and an aggressive fleet expansion. Even after factoring in seven new
assets, namely two drilling rigs, two derrick lay vessels and three pipelay/diving
support vessels, to be delivered in 2014 (Figure 15), net gearing is expected to be
manageable at 0.5x, giving the company room to gear up for more marginal
field jobs. Management has capped net gearing at 1.6x. Currently, the company
has a cash balance of about RM1.2bn.
Figure 15: SapuraKencanas enlarged asset base
SOURCE: COMPANY
Perisai
Perisai returned to investors radars in Apr 10 when SapuraCrests former CEO
Izzet Ishak took over the reins of the company and Singapores Ezra (EZRA SP,
Outperform) became the companys largest shareholder. Izzet wasted no time in
restructuring the company. From just one asset pipelay barge Enterprise 3 -
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July 26, 2012
Perisai has since added nine new assets, namely a MOPU and eight marine
support vessels. The company is far from done growing its fleet. In May 12, it
announced that it contracted Singapores SembCorp Marine (SMM SP,
Outperform) to build a jack-up drilling rig for US$208m and has an option on
another for US$210m. The first rig is expected to be delivered in Jul 14.
From pipe installation to production, marine support and drilling, Perisai has
been on a rapid transformation path. Management has expressed interest to
jump onto the marginal field bandwagon but we think for now management will
concentrate on the drilling venture and financing for the two rigs, which may
stretch the companys balance sheet. As at 31 Mar 12, net gearing stood at 0.9x
while its cash balance amounted to RM73m.
Petra Energy
Petra is in the spotlight given the ongoing sale of a 26.9% stake in the company
by Perdana Petroleum (PETR MK, Outperform) to Wah Seong (WSC MK,
Outperform) for RM97m or RM1.68/share. Earlier in Mar 12, Petra partnered
drilling services company Baker Hughes to work in the area of field rejuvenation
(see the section on Enhanced oil recovery offers new optimism). On top of all
these, the company reportedly stands a good chance of becoming Coastals
partner at KBM.
Currently on the mend after a string of quarterly losses, Petra turned in RM7m
net profit in 1Q12. As at 31 Mar 12, the company had a cash balance of RM87m
and net gearing of 0.4x. Its major shareholder is Sarawak-based Shorefield
Resources, which has a 27.3% stake. Shorefield is owned by a well-connected
Sarawak-based businessman Dato Bustari Yusof.
Puncak Niaga
Water treatment specialist Puncak has teamed up with a foreign partner to bid
for an RSC with Petronas for the development of a marginal field. On 2 May 12,
Upstream Online wrote that the undisclosed foreign partner was understood to
be Nio Petroleum, a London-based outfit targeting undeveloped discoveries and
producing assets that are too small to be economical for larger oil & gas
operators. Nio is majority-owned by the management team and Barclays.
In May 12, Puncaks executive chairman Tan Sri Rozali Ismail said the company
is ready to extend its operations from the existing pipe replacement business to
offshore exploration in Malaysia and overseas after setting up two oil & gas
subsidiaries, namely Global Offshore and KGL, last Sep. Global is involved in
pipe installation while KGL owns pipelay barge DLB 264. Puncak is aiming to
triple the order book for its oil & gas business to RM1.5bn this year. As at 31 Mar
12, net gearing stood at 0.3x. The companys coffers had RM1.3bn in cash.
TH Heavy Engineering
TH Heavy Engineering (THHE), formerly known as Ramunia, hopes to have its
PN17 status lifted by the end of Jul after which it will be ready to move on to the
next phase of growth. The company fell into PN17 in Mar 10 after selling its
Teluk Ramunia fabrication yard to Sime Darby (SIME MK, Trading Buy) for
RM530m. THHEs biggest shareholder is Lembaga Tabung Haji (LTH), whose
25.2% stake will eventually be raised to 32%. LTH has invested some RM300m
in THHE since 2008.
Given its PN17 status, THHE may not be the best candidate for a marginal field
contract but we note that LTH is a cash-rich entity and could serve as good
leverage for THHE.
2.7 Enhanced oil recovery offers new optimism
Another area of growth for the oil & gas sector is field rejuvenation through
enhanced oil recovery (EOR), which falls under EPP1 (Figure 5). The
development kicked off in Jun 09 when Petronas and ExxonMobil signed a PSC
to invest US$2.1bn in an EOR project at Tapis and six other fields, namely Seligi,
Guntong, Semangkok, Irong Barat, Tabu and Palas, all located in offshore
Trengganu. Each company has a 50% stake in the PSC, which has ExxonMobil
18
July 26, 2012
as the operator. An ExxonMobil representative has been quoted as saying that

the Tapis redevelopment project is due to start in 2013 and will be the first ever
large-scale project of its kind in Malaysia. The gross investment forecast for the
Tapis EOR project could exceed US$1bn.
Tapis was discovered in 1969. The field is 16km long and 7km wide. The highest
quality crude oil in the world, which is light and sweet, is named after the field.
In 2005, it was stated that about 90% of the original developments estimated
recoverable oil at the field had been produced. The EOR is estimated to add
more than 20m barrels of reserves.
Tapis contributes some 30% to Malaysias total production of oil and
condensate, making it the single largest producing field in the country. However,
steady production levels in the earlier years have taken a toll on the ageing field.
In 2010, it was reported that the output from Tapis has fallen from around
300,000 bpd to 200,000 bpd in recent years, dragging down Malaysias total
output.
The EOR is likely to follow the RSC structure of marginal field development, if
recent announcements are any indication:
On 2 Apr 12, Petra inked an MOU with Baker Hughes to undertake oil & gas
projects in Malaysia, which are related to EOR works.
Later, on 22 Jun 12, Dialog signed an MOU with Halliburton to pursue
projects relating to the rejuvenation of mature oil fields.
Details on timeline, investments and the number of fields up for redevelopment
have not been revealed. However, given the existence of 163 oil fields under PSC
terms and the gross investment forecast for Tapis potentially exceeding US$1bn,
EOR could offer new optimism and another exciting growth avenue for
Malaysian oil & gas companies besides marginal field development.
3. SWOT ANALYSIS
Figure 16: SWOT analysis
Strengths Opportunities
Petronas licences and RSCs ETP newsflow and more awards of sizeable RSCs
High barriers of entry in terms of capital Tie-ups with foreign marginal field specialists
Ownership of strategic assets, i.e. FPSOs and MOPUs Enhanced competitiveness
Weaknesses Threats
Shortage of skilled personnel Severe drop in oil price could affect E&P planning
Long waiting period for next RSCs Delays in project execution and asset delivery
High capital outlay More companies eye RSCs
Overseas markets, i.e. Australia, Brazil, India and the Middle East, offer room
for growth for local service providers but the home ground remains an
important and relevant market, even more so with the governments ETP and
Petronass strategy to trim overseas works and focus on domestic development.
The ETP has fired up the oil & gas sector owing to the attractive opportunities
for local companies. The marginal field development has generated the most
interest, not only among local players but international ones as well. After the
awards of Berantai in Jan 11 and Balai in Aug 11, the newsflow has slowed down
but is expected to pick up in 2H12, starting with the award of the KBM cluster to
Coastal earlier this month.
In addition to the exciting earnings prospects offered by the marginal field
development, the service providers main strengths are 1) their strong affiliation
with Petronas, other national oil companies and oil majors, 2) high barriers to
entry in terms of Petronas licensing and the priority given to local companies,
and 3) ownership of strategic assets, i.e. FPSOs and MOPUs. Having said that,
the development of a marginal field requires sizeable capital requirements of
19
July 26, 2012
around US$1bn, which may exert pressure on balance sheets. On the human
resource side of operations, shortage of skilled personnel and the late delivery of
assets to project sites could cause delays, resulting in contractors missing out on
performance bonuses.
4. RISKS
4.1 Collapse in oil price
The plunge of the oil price to close to US$30/barrel in late-2008 sparked
speculation about whether it was commercially viable for producers to proceed
with certain projects. We believe that major players with old fields that are still
producing in large volumes, i.e. Petronas, are unlikely to incur losses even if the
oil price reverses to US$30/barrel, thanks to its low production costs. For
competitive reasons, Petronas keeps its cost figures close to its chest but we
gather that its average production cost could be below US$10/barrel. The
majority of Petronass major producing fields are in shallow to medium waters.
These fields are inherited from expired PSCs at, we believe, zero capital cost.
Furthermore, Petronass production volume, the bulk of which comes from
these shallow to medium waters, is still relatively strong, hitting 630,000 bpd as
at end-2011 (see page 2).
Having said that, while the current producing fields can still generate profits at
US$30/barrel, marginal field development may no longer be feasible given high
production costs as increased environmental concerns necessitate higher
standards while resource constraints in the form of a limited number of
engineers, yards, rigs and pipelay barges pose budget challenges. We
understand that oil price of around US$60/barrel is needed to support marginal
field exploration.
4.2 Cost escalation
While higher oil prices have brought increased opportunities for marginal field
development, they have also heightened development risks and costs. A major
factor behind cost escalation is the rising demand and higher charter rates for
assets such as rigs and barges, which could create a setback for RSCs as they
require a low-cost approach compared with PSCs. Over the past five years, the
charter rate for a tender-assisted drilling rig has soared 43% to US$171,000/day
(Figure 17).
Figure 17: Maximum charter rate for tender rigs, Jan 2004-Jul 2012
$200,000
$160,000
$120,000
$80,000
$40,000
$0
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
SOURCES: RIGZONE
20
July 26, 2012
4.3 Late asset deliveries

In 2008, a shortage of engines disrupted construction works at some shipping
yards in China and Batam, resulting in delayed vessel deliveries for players such
as Alam Maritim (AMRB MK, Buy) and Perdana. More recently, the
Petrofac-SapuraKencana consortium was hit by a postponed delivery of an
FPSO, delaying Berantais first gas target by four months to Aug 12.
4.4 Talent crunch
Another obstacle contributing to longer lead times is the shortage of human
resources, particularly experienced rig and vessel/barge crew. Malaysias oil &
gas personnel are a prime export unless they are offered competitive salaries
locally. The average age in the oil & gas business is 51 years. By 2015, 50% of the
current workforce will have retired and by 2020, 80% of the current workforce
will have retired. The current retirement rate is 6% and rising while graduate
intake is 2% p.a. and increasing slowly. The availability of labour is especially
crucial when companies are tendering for big projects and need to expand
swiftly. Labour makes up around 30% of total cost and some companies offer
share options to incentivise staff. A Talentcorp finding reveals that it takes more
than 90 days to fill oil & gas positions such as petroleum engineers and
geoscientists due to the talent shortage.
When asked what the biggest challenge is for SapuraKencana, CEO Dato Seri
Shahril cited human resources. Currently, its workforce of 9,000 across more
than 20 countries is sufficient but with the delivery of seven new assets in 2014
(Figure 15) and potentially more marginal fields, it will need more offshore
personnel.
5. VALUATION AND RECOMMENDATION

5.1 ETP and record capex support marginal field projects
We have positive expectations for the Malaysian oil & gas sector. It has been a
major driver of Malaysias economic growth but the ETP has provided a new
and strong catalyst. Sector-wide opportunities, whether upstream or
downstream, are being pursued to reach the GNI targets and ensure a
sustainable energy platform for the country. Petronass all-time high capex and
service providers pursuit of marginal fields should keep the excitement level
high in a sector that is a major revenue earner for the government.
5.2 An E&P boost
A high oil price backs Petronass various initiatives and gives it and other
producers more confidence to open their wallets. Billions of dollars are being
committed to new projects as the national oil company aims to exploit new
reserves and strives to get the most from mature and marginal field assets. The
development of marginal fields augurs well for the upstream players whose role
has been somewhat limited to that of service providers in the past. This
initiative, coupled with the implementation of a new tax scheme, could help
Malaysia produce more E&P companies and put the country on the map when it
comes to marginal field capability.
With more than 20 fields available for development, there is much more work to
come. A strong partnership and ownership of critical assets allow efficient and
timely execution of projects. For local service providers that are going beyond
their normal scopes of work, finding the right partner for technical and
commercial fit is the real challenge as marginal field development is a relatively
new area for them. If the marginal field development is executed successfully,
Malaysian upstream oil & gas companies can become globally competitive.
5.3 19.3% 3-year EPS CAGR
We expect all-time high net profits in CY12-14 for Bumi Armada, Dialog, Perisai,
Petronas Dagangan, SapuraKencana and Wah Seong, which combined make up
67% of our oil & gas portfolio. This collective record performance supports our
21
July 26, 2012
3-year sector EPS CAGR of 19.3% for our oil & gas portfolio in Malaysia (Figure
2). The companies that are not expected to turn in record performances in FY12
are Alam, MMHE and Perdana. Marine support providers Alam and Perdana
are still recovering from the rough patch brought about by weak charter and
utilisation rates while MMHE is hit by delays at the yard and a depleting order
book.
5.4 Outpacing FBM KLCI to date
Reflecting bright prospects, the share prices of oil & gas stocks have gained 7.8%
on weighted average YTD compared to a 6.8% jump for the FBM KLCI. With a
weighted average increase in share price of 7.1%, our oil & gas portfolio has also
outpaced the benchmark index. Barrelling their way to the top of the league
table are Petronas Dagangan and Perisai while Alam is scraping the barrel
(Figure 18).
5.5 Maintain Overweight
The next newsflow could come from the award of the next RSC for marginal
field development. The ETP, therefore, remains a potential re-rating catalyst for
the sector, along with more contract awards. We continue to rate the sector an
Overweight with our top picks being SapuraKencana for the big caps and Perisai
for the small caps.
For exposure to marginal field development, we recommend SapuraKencana
and Dialog, which are already on track to produce first oil or gas at their
respective fields. Both have strong chances of gaining more RSCs given their
sound financial standings and experienced partners in Petrofac and Roc,
respectively. However, we believe SapuraKencana has a slight edge over Dialog
in scooping up the next RSC as the former and its partner Petrofac are set to
produce Berantais first gas next month, indicating the start of commercial
production. The Dialog-Roc-Petronas Carigali consortium is expected to hit first
oil or gas at Balai only next year at the earliest.
Following the recent upward revision of our CY13 target market P/E from 13x to
13.3x, we raise our target prices by 0.7-2.4% for all stocks within our coverage
except Perdana (Figures 19-22), which we continue to value at its RNAV. Please
see the next section for company write-ups.
Figure 18: Performance of our oil & gas portfolio relative to FBM KLCI, YTD
140
130
120
110
100
90
80
70
60
Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12
Petronas Dagangan Perisai FBM KLCI SapuraKencana Dialog

Bumi Armada MMHE Wah Seong Perdana Alam
SOURCES: BLOOMBERG
22
July 26, 2012
Figure 19: Target price valuations

Recommendation Share Previous Revised Upside Target price basis
price target target
(RM) price (RM) price (RM)
Alam Buy 0.53 1.23 132% 20% discount to 13x CY13 target market P/E
Bumi Armada Outperform 3.95 4.80 4.87 23% 40% premium to 13.3x CY13 target market P/E
Dialog Outperform 2.37 2.93 2.95 24% Sum of parts (Figures 20 and 21)
MMHE Underperform 5.35 4.65 4.75 -11% 40% premium to 13.3x CY13 target market P/E
Perdana Outperform 0.71 0.86 Unchanged 21% RNAV (Figure 22)
Perisai Outperform 0.885 1.50 1.53 73% 13.3x CY13 target market P/E
Petronas Dagangan Outperform 21.00 22.90 23.40 11% 40% premium to 13.3x CY13 target market P/E
SapuraKencana Outperform 2.39 2.90 2.97 24% 40% premium to 13.3x CY13 target market P/E
Wah Seong Outperform 1.87 2.52 2.58 38% 13.3x CY13 target market P/E
Figure 20: Dialogs previous sum-of-parts valuation

Dialog's DCF value
stake (%) (RM m)
Kertih 30 537
Tanjung Langsat 44 1,027
Pengerang 46 1,352
Jubail 100 87
FY13 net profit P/E Value

(RM m) (x) (RM m)
Petroleum retail 12 18.2 218
Catalyst handling 15 18.2 273
Plant maintenance 42 18.2 769
Base oil 48 18.2 878
EPCC 80 18.2 1,456
Marginal field (pre-development only) 10 18.2 182
Net cash (RM m) 360

Proceeds from warrant conversion (RM m) 476
SOP valuation (RM m) 7,616

Fully-diluted no. of shares (m) 2,603
SOP valuation (RM / share) 2.93
Figure 21: Dialog's revised sum-of-parts valuation

Dialog's DCF value
stake (%) (RM m)
Kertih 30 537
Tanjung Langsat 44 1,027
Pengerang 46 1,352
Jubail 100 87
FY13 net profit P/E Value

(RM m) (x) (RM m)
Petroleum retail 12 18.6 223
Catalyst handling 15 18.6 279
Plant maintenance 42 18.6 787
Base oil 48 18.6 898
EPCC 80 18.6 1,456
Marginal field (pre-development only) 10 18.6 186
Net cash (RM m) 360

Proceeds from warrant conversion (RM m) 476
SOP valuation (RM m) 7,670

Fully-diluted no. of shares (m) 2,603
SOP valuation (RM / share) 2.95
23
July 26, 2012
Figure 22: Perdanas RNAV calculation

RM m
Book value of existing vessels 484.9
Deposits for vessels on sale-&-leaseback 81.4
Cash & near cash 35.8
Borrowings (307.1)
Net proceeds from sale of 26.9% stake in Petra Energy 93.9
RNAV 388.9
No. of shares (m) 495.1
RNAV / share (RM) 0.79
10% premium to RNAV 0.08
RNAV / share at 10% premium (RM) 0.86
24
Offshore & Marine MALAYSIA
July 26, 2012
Bumi Armada
BAB MK / BUAB.KL
Current RM3.95 SHORT TERM (3 MTH) LONG TERM
Market Cap Avg Daily Turnover Free Float Target RM4.87

US$3,643m US$5.72m 55.0% Previous Target RM4.80
RM11,567m RM17.83m 2,928 m shares Up/downside 23.3%
Conviction
CIMB Analyst Hope floats for direct marginal

Norziana Mohd Inon field works
T (60) 3 20849645
E norziana.inon@cimb.com Bumi Armada is no stranger to marginal field operations given its
indirect involvement at Sepat but it prefers to have equity
participation and not just one-off turnkey jobs. It is currently in talks
with potential foreign partners to bid for two marginal field contracts.
Our target price rises as we now value
Partnering Apache?
Share price info the stock at 18.6x CY13 P/E, a 40%
The potential foreign partners remain
premium over our target market P/E,
Share price perf. (%) 1M 3M 12M
unidentified but we understand that
which was recently raised from 13x to
Relative -4 -9.5 -8
one of them could be Australias
13.3x. Bumi Armadas solid RM7bn
Absolute -2 -6 -3.2
Apache, a marginal field player for
order book and four anticipated FPSO
Major shareholders % held
which Bumi Armada is supplying an
contract awards support our forecast
Usaha Tegas 43.0
FPSO in a 4+4, RM1.5bn deal signed
of record net profits in FY12-14 and a
EPF 6.9
last year.
Skim ASB 5.8 30.7% 3-year EPS CAGR. Maintain
Outperform.
Cruising with five FPSO
Sepat experience contracts
Last year, Petrofac contracted Bumi Marginal field development aside,
Armada to supply an FSO for the Bumi Armadas earnings visibility is
fast-tracked development of Sepat. In already good given the long-term
Jan 12, Petrofac celebrated the flow of nature of its five FPSO contracts. The
first oil at the field, signaling the start company, which is the worlds 6th
of commercial production. It was a largest FPSO operator, is vying for
profitable one-off project for Bumi opportunities in Malaysia, Indonesia,
Armada but for its future marginal Angola, Nigeria and Brazil and
field jobs, the company is keen to take hoping to clinch two FPSO contracts
on more direct responsibility as a each in FY12-13. The FPSO business
producer and developer a role that is the companys main driver, making
could give the company access to up 68% of its RM7bn order book and
recurring income. Management has 74% of RM3.1bn in extension options.
submitted its bids for the marginal
fields.
4.7
Price Close Relative to FBMKLCI (RHS)
107 Financial Summary
4.5 105
4.3 103 Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F
4.1
3.9
100
98
Revenue (RMm) 1,241 1,544 2,072 2,686 2,797
3.7 96 Operating EBITDA (RMm) 716 834 1,477 1,893 2,077
3.5 94
3.3 91 Net Profit (RMm) 350.8 359.7 572.7 765.9 835.3
3.1 89
80
Core EPS (RM) 0.12 0.12 0.20 0.26 0.29
Vol m
60
40 Core EPS Growth 26.4% 2.5% 59.2% 33.7% 9.1%
20
FD Core P/E (x) 32.98 32.16 20.20 15.10 13.85
Jul-11 Oct-11 Jan-12 Apr-12 DPS (RM) - 0.025 0.025 0.025 0.025
Source: Bloomberg
Dividend Yield 0.00% 0.63% 0.63% 0.63% 0.63%
EV/EBITDA (x) 20.55 15.99 11.04 9.20 8.38
52-week share price range P/FCFE (x) NA NA 84.4 121.8 55.8
3.95 Net Gearing 359% 50% 202% 188% 148%
3.24 4.48 P/BV (x) 13.23 3.28 4.92 3.71 2.93
Recurring ROE 45.4% 16.3% 19.5% 28.0% 23.6%
4.87
Current Target % Change In Core EPS Estimates 0% 0% 0%
CIMB/consensus EPS (x) 1.05 1.11 1.02
Bumi Armada
July 26, 2012
Profit & Loss Balance Sheet

(RMm) Dec-11A Dec-12F Dec-13F Dec-14F (RMm) Dec-11A Dec-12F Dec-13F Dec-14F
Revenue 1,544 2,072 2,686 2,797 Fixed Assets 5,297 6,247 7,634 7,763
Other Operating Income Intangible Assets - - - -
Cost Of Sales (710) (995) (1,293) (1,321) Other Long Term Assets 19.2 19.2 19.2 19.2
Gross Profit 834 1,077 1,393 1,476 Total Non-current Assets 5,316 6,266 7,653 7,783
Total Operating Costs (326.8) (318.2) (383.7) (383.7) Total Cash And Equivalents 1,247 124 124 124
Operating Profit 507 759 1,010 1,093 Inventories 1.12 1.12 1.12 1.12
Operating EBITDA 834 1,477 1,893 2,077 Accounts Receivable 266.7 339.7 441.6 459.9
Depreciation And Amortisation (326.8) (718.2) (883.7) (984.2) Other Current Assets 828 1,260 1,845 2,393
Operating EBIT 507 759 1,010 1,093 Total Current Assets 2,343 1,725 2,412 2,979
Net Interest Income (71.6) (136.8) (177.3) (184.6) Trade Creditors 1,001 605 881 789
Exchange Gains - - - - Short-term Debt 447 447 447 447
Other Income - - - - Other Current Liabilities 105.6 170.9 98.5 50.3
Associates' Profit 0.00 0.00 0.00 0.00 Total Current Liabilities 1,554 1,223 1,427 1,287
Profit Before Tax (pre-EI) 435.9 622.5 832.5 907.9 Total Long-term Debt 2,560 4,416 5,521 5,521
Exceptional Items - - - - Other Liabilities 2.61 2.60 2.61 2.61
Pre-tax Profit 435.9 622.5 832.5 907.9 Deferred Tax - - - -
Taxation (70.56) (49.80) (66.60) (72.63) Total Non-current Liabilities 2,562 4,419 5,524 5,524
Exceptional Income - post-tax Shareholders' Equity 3,528 2,349 3,115 3,951
Profit After Tax 365.3 572.7 765.9 835.3 Minority Interests 14.70 0.00 0.00 0.00
Minority Interests (5.66) 0.00 0.00 0.00 Preferred Shareholders Funds
Other Adjustments - post-tax Total Equity 3,543 2,349 3,115 3,951
Net Profit 359.7 572.7 765.9 835.3
Recurring Net Profit 359.7 572.7 765.9 835.3
Cash Flow Key Ratios

(RMm) Dec-11A Dec-12F Dec-13F Dec-14F Dec-11A Dec-12F Dec-13F Dec-14F
Pre-tax Profit 435.9 622.5 832.5 907.9 Revenue Growth 24.4% 34.2% 29.6% 4.1%
Depreciation And Non-cash Adj. 398 855 1,061 1,169 Operating EBITDA Growth 16.6% 77.1% 28.2% 9.7%
Change In Working Capital (117.7) (400.1) (454.7) (558.0) Operating EBITDA Margin 54.0% 71.3% 70.5% 74.2%
Tax Paid (32.95) (49.80) (66.60) (72.63) Net Cash Per Share (RM) (0.60) (1.62) (2.00) (2.00)
Other Operating Cashflow 91.74 57.42 66.60 59.27 BVPS (RM) 1.20 0.80 1.06 1.35
Cashflow From Operations 775 1,085 1,439 1,505 Gross Interest Cover 4.65 5.55 5.70 5.92
Capex (1,246) (2,809) (2,271) (1,113) Tax Rate 16.2% 8.0% 8.0% 8.0%
Disposals Of FAs/subsidiaries 0.00 0.00 0.00 0.00 Net Dividend Payout Ratio 20.2% 12.7% 9.5% 8.7%
Acq. Of Subsidiaries/investments Accounts Receivables Days 53.94 53.55 53.08 58.81
Other Investing Cashflow 0.00 0.00 0.00 0.00 Inventory Days 0.58 0.41 0.32 0.31
Cash Flow From Investing (1,246) (2,809) (2,271) (1,113) Accounts Payables Days 315.9 295.2 209.7 230.7
Debt Raised/(repaid) 399 1,998 1,105 0 ROIC (%) 9.1% 11.3% 11.6% 10.7%
Equity Raised/(Repaid) - - - - ROCE (%) 10.1% 11.0% 12.4% 11.5%
Dividends Paid
Net Cash Interest (71.6) (136.8) (177.3) (184.6)
Other Financing Cashflow
Cash Flow From Financing 327 1,861 927 (185)
Total Cash Generated (143.5) 137.0 94.9 207.3
Change In Net Cash (542) (1,861) (1,010) 207
Free Cashflow To Equity (143.5) 137.0 94.9 207.3
Key Drivers
Dec-11A Dec-12F Dec-13F Dec-14F
Outstanding Orderbook (RMm) N/A N/A N/A N/A
Order Book Wins (RMm) N/A N/A N/A N/A
Orderbook Depletion (RMm) N/A N/A N/A N/A
Average Day Rate Per Ship (US$) 200,000.0 200,000.0 200,000.0 200,000.0
No. Of Ships (unit) 5 7 9 9
Average Utilisation Rate (%) 100.0% 100.0% 100.0% 100.0%
26
Oil & Gas - Equipment & Svs MALAYSIA
July 26, 2012
Dialog Group
DLG MK / DIAL.KL

Conviction
CIMB Analyst Two big ETP projects speak

Norziana Mohd Inon volumes
T (60) 3 20849645
E norziana.inon@cimb.com Dialog is on a roll, securing back-to-back a tank terminal project in
Pengerang and a marginal field development contract for the Balai
cluster. Both are key ETP projects. Together with Roc, the company is
actively pursuing other marginal field opportunities in Malaysia.
In our SOP-based target price field development to be decided next
Share price info calculation, we now value Dialogs year. BC Petroleum is negotiating
Share price perf. (%) 1M 3M 12M businesses at 18.6x CY13 P/E, a 40% with Petronas for eight more RSCs.
Relative -3.7 3.3 -6.4 premium over our CY13 target market
Absolute -1.7 6.8 -1.6 P/E, which was recently raised from Tanking up in Pengerang
Major shareholders % held 13x to 13.3x. Potential contracts, The terminal in Pengerang, dubbed
Ngau Boon Keat 26.7 which include Rapid as well as Asias Rotterdam, is Dialogs third
EPF 15.8 mature and marginal fields, underpin and complements its investments in
our Outperform call. Kertih and Tanjung Langsat. Of the
three terminals, Pengerang will be the
Balai on track biggest with a storage capacity of 5m
Dialog started out as a pure cubic metres, significantly higher
downstream player but it has than Kertihs 400,000 cubic metres
ventured into the upstream in a major and Tanjung Langsats 650,000 cubic
way through its 32% equity metres.
participation in Balai with Roc (48%)
and Petronas Carigali (20%). The Old is (black) gold
three parties collectively form a Kuala Dialogs MOU with Halliburton to
Lumpur-based JV called BC pursue opportunities in field
Petroleum. Within the oil & gas rejuvenation could secure the
sector, Dialog is currently the biggest company its third ETP project. It
beneficiary of the ETP, thanks to the could also give it a new source of
15-year, US$850m-950m Balai long-term income in addition to Balai
development and the 7-year, RM5bn and the three terminal concessions.
Pengerang tank terminal project. Details on investments and the
timeline for the field rejuvenation
Test production from Balai is
have not been disclosed.
expected to start this Oct with full
2.6
108
2.4 105
102
Jun-10A Jun-11A Jun-12F Jun-13F Jun-14F
2.2 99
96
Revenue (RMm) 1,139 2,658 3,735 6,248 8,240
2.0 93
90
Operating EBITDA (RMm) 130.7 177.8 226.5 319.1 376.1
1.8 87
84
Net Profit (RMm) 116.1 152.3 186.0 269.8 320.0
1.6 81
50
Core EPS (RM) 0.06 0.08 0.07 0.10 0.12
Vol m
40
30
20
Core EPS Growth 26.5% 30.5% (6.6%) 45.1% 18.6%
10 FD Core P/E (x) 40.50 30.89 29.27 22.86 19.28
Jul-11 Oct-11 Jan-12 Apr-12 DPS (RM) 0.031 0.040 0.051 0.063 0.073
Source: Bloomberg
Dividend Yield 1.31% 1.69% 2.15% 2.66% 3.08%
EV/EBITDA (x) 32.60 23.65 24.20 16.75 13.85
52-week share price range P/FCFE (x) 53.7 41.2 274.4 56.5 35.4
2.37 Net Gearing (32.2%) (36.1%) (43.8%) (46.7%) (48.2%)
1.74 2.51 P/BV (x) 8.04 6.74 6.57 5.45 4.60
Recurring ROE 22.2% 23.7% 22.7% 26.1% 25.9%
2.95
Dialog Group
July 26, 2012

(RMm) Jun-11A Jun-12F Jun-13F Jun-14F (RMm) Jun-11A Jun-12F Jun-13F Jun-14F
Revenue 2,658 3,735 6,248 8,240 Fixed Assets 313.2 332.5 351.9 371.5
Other Operating Income Intangible Assets 1.68 1.68 1.68 1.68
Cost Of Sales (2,312) (3,232) (5,562) (6,920) Other Long Term Assets 592.7 610.4 628.0 629.4
Gross Profit 346 503 686 1,320 Total Non-current Assets 908 945 982 1,003
Total Operating Costs (176.2) (284.1) (374.9) (952.0) Total Cash And Equivalents 256.8 415.9 534.4 654.8
Operating Profit 169.9 218.4 311.0 367.8 Inventories 80.9 144.1 190.1 250.7
Operating EBITDA 177.8 226.5 319.1 376.1 Accounts Receivable 476 869 1,155 1,494
Depreciation And Amortisation (7.86) (8.03) (8.19) (8.33) Other Current Assets 5.07 6.07 7.07 7.07
Operating EBIT 169.9 218.4 311.0 367.8 Total Current Assets 819 1,435 1,886 2,407
Net Interest Income 9.96 16.61 24.82 34.88 Trade Creditors 495 902 1,199 1,552
Exchange Gains - - - - Short-term Debt 1.00 1.50 2.00 2.50
Associates' Profit 22.57 23.02 23.48 23.95 Total Current Liabilities 1,021 1,435 1,730 2,060
Profit Before Tax (pre-EI) 202.4 258.1 359.3 426.6 Total Long-term Debt 1.66 2.16 2.66 3.16
Exceptional Items - - - - Other Liabilities - - - -
Pre-tax Profit 202.4 258.1 359.3 426.6 Deferred Tax 0.090 0.090 0.090 0.090
Taxation (49.9) (71.9) (89.2) (106.4) Total Non-current Liabilities 1.75 2.25 2.75 3.25
Exceptional Income - post-tax Shareholders' Equity 700 938 1,131 1,342
Minority Interests (0.19) (0.19) (0.19) (0.19) Preferred Shareholders Funds
Other Adjustments - post-tax Total Equity 704 942 1,135 1,347
Net Profit 152.3 186.0 269.8 320.0

(RMm) Jun-11A Jun-12F Jun-13F Jun-14F Jun-11A Jun-12F Jun-13F Jun-14F
Pre-tax Profit 202.4 258.1 359.3 426.6 Revenue Growth 133% 41% 67% 32%
Depreciation And Non-cash Adj. (24.67) (31.60) (40.12) (50.50) Operating EBITDA Growth 36.0% 27.4% 40.9% 17.8%
Tax Paid (11.98) (17.25) (21.42) (25.53) Net Cash Per Share (RM) 0.13 0.16 0.20 0.25
Other Operating Cashflow (2.46) (20.29) (29.30) (29.30) BVPS (RM) 0.35 0.36 0.43 0.52
Cashflow From Operations 140.8 140.5 233.1 274.1 Gross Interest Cover 2,265 1,748 1,777 1,635
Capex (10.0) (100.0) (110.0) (85.0) Tax Rate 24.7% 27.9% 24.8% 24.9%
Acq. Of Subsidiaries/investments - - - - Accounts Receivables Days 52.86 65.88 59.10 58.67
Cash Flow From Investing (6.0) (94.0) (102.0) (80.0) Accounts Payables Days 63.23 79.11 68.96 72.56
Debt Raised/(repaid) 1.00 1.00 1.00 1.00 ROIC (%) 75.6% 72.2% 83.9% 80.1%
Dividends Paid (44.3) (51.3) (95.6) (133.1)
Other Financing Cashflow - - - -
Cash Flow From Financing (64.6) (75.3) (117.6) (153.1)
Total Cash Generated 70.31 (28.79) 13.55 41.06
Change In Net Cash 69.31 (29.79) 12.55 40.06
Free Cashflow To Equity 114.6 22.5 109.1 174.1
Key Drivers
Jun-11A Jun-12F Jun-13F Jun-14F
Outstanding Orderbook (RMm) 500.0 600.0 700.0 800.0
Order Book Wins (RMm) 400.0 400.0 400.0 400.0
Orderbook Depletion (RMm) 300.0 300.0 300.0 300.0
Average Day Rate Per Ship (US$) - - - -
No. Of Ships (unit) - - - -
28
July 26, 2012
Malaysia Marine & Heavy Eng

MMHE MK / MHEB.KL

RM8,560m RM3.23m 1,600 m shares Up/downside -11.1%
Conviction
CIMB Analyst First things first

Although marginal field development could be a lucrative venture for
Norziana Mohd Inon MMHE, we understand that it is not the companys priority at the
T (60) 3 20849645
E norziana.inon@cimb.com moment. What is more pressing is the Gumusut-Kakap platform, the
completion of which has been delayed until next year.
Our target price rises as we now value experience and infrastructure to
the stock at 18.6x CY13 P/E, a 40% benefit from current and future
premium over our target market P/E, demand from the oil & gas industry in
which was raised recently from 13x to Malaysia, Southeast Asia and the
Share price info
13.3x. Order book risks cloud Caspian region, delays, project
MMHEs earnings visibility and uncertainties and intensifying
Relative 0.3 -1.8 -37.9
support our Underperform call. competition are among the key issues
Absolute 2.3 1.7 -33.1
Switch to SapuraKencana. posing challenges to the company. Its
order book has plunged from
MMHE 66.5
On the back burner RM5.95bn as at Jun 10 to RM2.4bn
Technip 8.5
The turnkey contract for Sepat was as at Mar 12. YTD, MMHE has
PNB 6.4
awarded to Petrofac in late-2010. secured only one major contract, a
Competing bids were believed to have RM278m job awarded by Sarawak
come from Roc and Technip, which Shell.
was reported to have partnered
MMHE. -13.7% 3-year EPS CAGR
The expected fall in MMHEs
We understand that MMHE is still
earnings and the companys 3-year
keen to explore marginal field
EPS CAGR of -13.7%, in stark contrast
development but this is not high on
to the solid sector average of 19.3%,
the companys agenda for now. We
buck the broader sectors uptrend. We
believe the main focus is the
think that investors will prefer
Gumusut-Kakap platform, the
companies with more solid and
completion of which has been
long-term order books and will hold
postponed until next year.
back from buying MMHE until there
is a substantial improvement in its
Shrinking order book earnings prospects.
While MMHE owns Malaysias largest
oil & gas fabrication yard and is
well-positioned in terms of
7.9
7.4 100
6.9 93
Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F
6.4 86 Revenue (RMm) 4,857 3,231 3,651 4,224 4,002
5.9 78
5.4 71
4.9 64 Net Profit (RMm) 408.5 316.7 380.5 408.5 380.9
4.4 57
15
Core EPS (RM) 0.40 0.23 0.24 0.26 0.24
Vol m
10
Core EPS Growth na (43.7%) 5.0% 7.4% (6.8%)
5
FD Core P/E (x) 18.92 26.20 22.50 20.95 22.47
Source: Bloomberg
Dividend Yield 0.53% 1.57% 1.40% 1.40% 1.40%
EV/EBITDA (x) 10.01 18.27 14.00 16.34 17.21
52-week share price range P/FCFE (x) 16.46 NA 84.86 48.78 21.66
5.35 Net Gearing (60.6%) (65.0%) (67.6%) (70.1%) (72.6%)
4.75 7.69
P/BV (x) 3.24 3.66 3.63 3.58 3.53
Recurring ROE 13.6% 16.2% 17.2% 15.8%
4.75
Malaysia Marine & Heavy Eng
July 26, 2012

(RMm) Mar-11A Dec-11A Dec-12F Dec-13F Dec-14F
(RMm) Dec-11A Dec-12F Dec-13F Dec-14F
Revenue 4,435 2,137 3,651 4,224 4,002
Fixed Assets 946 900 862 820
Other Operating Income
Cost Of Sales (3,859) (1,778) (3,043) (3,675) (3,445) Intangible Assets - - - -
Gross Profit 576.6 359.2 608.0 549.1 556.2 Other Long Term Assets 114.5 118.0 122.7 127.6
Total Operating Costs (177.1) (155.1) (161.2) (196.9) (236.3) Total Non-current Assets 1,061 1,018 985 948
Operating Profit 399.6 204.1 446.7 352.2 320.0 Total Cash And Equivalents 1,521 1,597 1,676 1,760
Operating EBITDA 434.5 234.1 497.4 421.4 395.2 Inventories 31.55 32.50 33.47 34.48
Depreciation And Amortisation (34.90) (30.01) (50.70) (69.20) (75.20) Accounts Receivable 2,419 2,540 2,667 2,800
Operating EBIT 399.6 204.1 446.7 352.2 320.0 Other Current Assets 0.00 0.00 0.00 0.00
Net Interest Income (0.77) 0.00 0.00 0.00 0.00
Total Current Assets 3,971 4,169 4,377 4,595
Exchange Gains
Other Income
Trade Creditors 2,662 2,795 2,935 3,081
Associates' Profit 25.25 46.75 0.00 0.00 0.00 Short-term Debt 0.00 0.00 0.00 0.00
Profit Before Tax (pre-EI) 424.0 250.8 446.7 352.2 320.0 Other Current Liabilities 29.4 30.7 34.1 35.8
Exceptional Items Total Current Liabilities 2,691 2,825 2,969 3,117
Pre-tax Profit 424.0 250.8 446.7 352.2 320.0 Total Long-term Debt - - - -
Taxation 26.45 (44.92) (67.01) 55.60 60.00 Other Liabilities
Exceptional Income - post-tax Deferred Tax 0.00 0.00 0.00 0.00
Profit After Tax 450.5 205.9 379.7 407.8 380.0
Total Non-current Liabilities 0.00 0.00 0.00 0.00
Minority Interests 0.27 (0.33) 0.80 0.70 0.90
Other Adjustments - post-tax
Shareholders' Equity 2,341 2,361 2,392 2,424
Net Profit 450.7 205.6 380.5 408.5 380.9 Minority Interests 0.00 1.00 1.00 2.00
Recurring Net Profit 450.7 205.6 380.5 408.5 380.9 Preferred Shareholders Funds
Total Equity 2 341 2 362 2 393 2 426

Mar-11A Dec-11A Dec-12F Dec-13F Dec-14F
Revenue Growth (27.8%) (51.8%) 70.9% 15.7% (5.3%)
Pre-tax Profit 355.4 446.7 352.2 320.0 Operating EBITDA Growth 7% (46%) 112% (15%) (6%)
Depreciation And Non-cash Adj. (14.17) 50.70 69.20 75.20 Operating EBITDA Margin 9.8% 11.0% 13.6% 10.0% 9.9%
Change In Working Capital 30.36 11.18 11.76 0.00 Net Cash Per Share (RM) 0.91 0.95 1.00 1.05 1.10
Tax Paid 3.50 (69.47) (67.01) 0.00 BVPS (RM) 1.44 1.46 1.48 1.50 1.51
Other Operating Cashflow (348.9) (205.3) (45.9) 0.0 Gross Interest Cover 519.6 N/A N/A N/A N/A
Cashflow From Operations 26.2 233.8 320.3 395.2 Tax Rate 0.0% 17.9% 15.0% 0.0% 0.0%
Net Dividend Payout Ratio 13.3% 58.4% 31.5% 29.4% 31.5%
Capex (185.6) (159.3) (170.5) 0.0
Accounts Receivables Days 217.4 303.9 248.6 225.0 249.4
Disposals Of FAs/subsidiaries 33.29 26.40 25.70 0.00
Inventory Days 3.27 4.81 3.85 3.28 3.60
Acq. Of Subsidiaries/investments Accounts Payables Days 268.3 401.9 328.1 284.5 318.6
Other Investing Cashflow ROIC (%) 49.2% 20.0% 47.9% 47.5% 46.3%
Cash Flow From Investing (152.3) (132.9) (144.8) 0.0 ROCE (%) 20.8% 8.8% 19.0% 14.8% 13.3%
Debt Raised/(repaid) - - - -
Equity Raised/(Repaid) 241.8 0.0 0.0 0.0
Dividends Paid (374.0) (300.0) (300.0) 0.0
Net Cash Interest (0.19) 0.00 0.00 0.00
Cash Flow From Financing (132.3) (300.0) (300.0) 0.0
Total Cash Generated (258.5) (199.1) (124.5) 395.2
Change In Net Cash (258.5) (199.1) (124.5) 395.2
Key Drivers
Outstanding Orderbook (RMm) 3,100.0 3,700.0 4,300.0 4,900.0 5,500.0
Order Book Wins (RMm) 1,000.0 1,000.0 1,000.0 1,000.0 1,000.0
Orderbook Depletion (RMm) 400.0 400.0 400.0 400.0 400.0
Average Day Rate Per Ship (US$) N/A N/A N/A N/A N/A
No. Of Ships (unit) N/A N/A N/A N/A N/A
Average Utilisation Rate (%) N/A N/A N/A N/A N/A
30
July 26, 2012
Perdana Petroleum
PETR MK / PTRD.KL

US$110.7m US$0.43m 66.0% Previous Target RM0.86
RM351.5m RM1.37m 495.1 m shares Up/downside 21.1%
Conviction
CIMB Analyst
Continuing its course with extra
Norziana Mohd Inon
T (60) 3 20849645
Energy
E norziana.inon@cimb.com The sale of Perdanas 26.9% stake in Petra Energy is long overdue as
Perdana lost control of the latter in FY09. The block is valued at
RM97m, which is set to help Perdana trim its debt and return to
profitability. Expect calmer waters ahead.
We continue to value the stock at its Perdanas fleet comprises 13
Share price info RNAV. Marine support remains the newbuilds from its fleet renewal
Share price perf. (%) 1M 3M 12M weakest segment in the oil & gas programme that began in FY07 and
Relative 11.6 15.8 -19.3 sector but we are encouraged by was completed in Dec 2011.
Absolute 13.6 19.3 -14.5 Perdanas potential turnaround in Equipped with this young fleet,
Major shareholders % held 2Q12 after a string of quarterly losses. Perdana is scouting for work in
Dayang Enterprise 14.9 Maintain Outperform. Thailand, Indonesia, Vietnam and
Shamsul Saad & Koh
10.0
Myanmar.
brothers
Lembaga Tabung Haji 9.1
Ongoing divestment
Perdana is in the midst of selling its Dayang ups its stake
26.9% stake in Petra to Wah Seong. Dayang became Perdanas largest
The divestment is a long time coming shareholder in Dec 11 following a
as Perdana lost control of Petra in 10% share placement (at 71
FY09 to Shorefield Resources, which sen/share) and purchases in the
has a 27.3% stake. Shorefield is open market. We note that Dayang
owned by Sarawak-based has been actively accumulating
businessman Dato Bustari Yusof. Perdana shares amidst the latters
improving outlook. Currently,
Proceeds from the divestment will
Dayang has a 14.9% stake.
help Perdana reduce its borrowings
and return to profitability. Of the FY12 will mark the first year of
RM97m proceeds, RM65.5m will be synergies between the two companies
used to pare down debt, RM28.5m in the area of brownfield services that
for working capital and RM3m for require workbarges. Perdana has
expenses. four workbarges while Dayang has
none.
Eyeing regional works
0.90
106
0.80 100
94
0.70 88
82
Revenue (RMm) 254.9 255.9 453.2 470.0 529.0
0.60 76
70
Operating EBITDA (RMm) (42.4) 0.1 91.8 103.3 116.2
0.50 64
58
Net Profit (RMm) (71.46) (66.48) 30.43 37.84 45.31
0.40 52
40
Core EPS (RM) (0.16) (0.06) 0.06 0.08 0.09
Vol m
30
20 Core EPS Growth (417%) (62%) na 24% 20%
10
FD Core P/E (x) NA NA 11.03 9.29 7.76
Jul-11 Oct-11 Jan-12 Apr-12 DPS (RM) - - - - -
Source: Bloomberg
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) NA 10,094 9 7 6
52-week share price range P/FCFE (x) 6.75 NA NA NA 72.74
0.71 Net Gearing 79.6% 83.5% 58.6% 53.2% 48.2%
0.48 0.84 P/BV (x) 0.69 0.72 0.73 0.72 0.71
Recurring ROE (13.3%) (6.0%) 6.6% 7.8% 9.2%
0.86
Perdana Petroleum
July 26, 2012

Revenue 255.9 453.2 470.0 529.0 Fixed Assets 493.1 492.6 491.3 486.2
Cost Of Sales (251.6) (361.4) (366.7) (412.8) Other Long Term Assets 115.1 55.0 43.5 38.3
Gross Profit 4.3 91.8 103.3 116.2 Total Non-current Assets 608.2 547.6 534.8 524.5
Operating Profit (35.63) 47.29 53.79 61.21 Inventories 36.68 37.07 37.47 37.87
Operating EBITDA 0.1 91.8 103.3 116.2 Accounts Receivable 225.5 230.0 234.6 239.3
Operating EBIT (35.63) 47.29 53.79 61.21 Total Current Assets 496.7 503.5 510.4 517.4
Net Interest Income 8.39 (10.60) (9.70) (9.65) Trade Creditors 54.83 57.57 60.45 63.47
Associates' Profit 0.83 0.00 0.00 0.00 Total Current Liabilities 155.9 158.7 161.5 164.6
Profit Before Tax (pre-EI) (26.42) 36.69 44.09 51.57 Total Long-term Debt 405.2 301.4 279.0 258.2
Exceptional Items (39.30) 0.00 0.00 0.00 Other Liabilities 12.00 13.00 14.00 15.00
Pre-tax Profit (65.72) 36.69 44.09 51.57 Deferred Tax - - - -
Exceptional Income - post-tax Shareholders' Equity 441.5 482.5 489.9 498.4
Profit After Tax (66.24) 35.59 42.99 50.47 Minority Interests 90.3 95.5 100.6 105.8
Other Adjustments - post-tax Total Equity 531.9 578.0 590.6 604.2
Net Profit (66.48) 30.43 37.84 45.31
Recurring Net Profit (27.18) 30.43 37.84 45.31

Pre-tax Profit (65.72) 36.69 44.09 51.57 Revenue Growth 0.4% 77.1% 3.7% 12.6%
Depreciation And Non-cash Adj. 26.50 55.14 59.25 64.63 Operating EBITDA Growth N/A 108424% 13% 12%
Other Operating Cashflow 608.1 594.0 581.3 581.3 BVPS (RM) 0.98 0.97 0.99 1.01
Cashflow From Operations 566.7 682.6 681.4 694.3 Gross Interest Cover (1.91) 4.14 5.10 5.80
Capex (678.0) (678.0) (678.0) (678.0) Tax Rate 0.00% 2.99% 2.49% 2.13%
Disposals Of FAs/subsidiaries 2.10 3.10 4.10 0.10 Net Dividend Payout Ratio 0% 0% 0% 0%
Other Investing Cashflow - - - - Inventory Days 52.93 37.34 37.10 33.30
Debt Raised/(repaid) 0.00 0.00 0.00 0.00 ROIC (%) (3.59%) 4.78% 5.67% 6.54%
Equity Raised/(Repaid) - - - - ROCE (%) (0.83%) 4.77% 5.61% 6.43%
Dividends Paid - - - -
Total Cash Generated (120.8) (3.9) (4.1) 4.8
Change In Net Cash (120.8) (3.9) (4.1) 4.8
Free Cashflow To Equity (120.8) (3.9) (4.1) 4.8
Key Drivers
32
July 26, 2012
Perisai Petroleum
PPT MK / PPTB.KL

RM753.8m RM3.99m 851.8 m shares Up/downside 73.0%
Conviction
CIMB Analyst Marginal fields could be the

Norziana Mohd Inon future fuel of growth
T (60) 3 20849645
E norziana.inon@cimb.com In just two years, Perisai has evolved from a single-asset pipe installer
to a 10-asset player with operations that include marine support. The
company is far from done growing its operations. Drilling is next and
marginal field development could be on the horizon.
Our target price is higher as we now Management is still exploring
Share price info value the stock at our revised CY13 financing options.
Share price perf. (%) 1M 3M 12M target market P/E of 13.3x vs. 13x
Relative -1.4 -4.6 7.9 previously. Perisai remains an Jacking up its growth
Absolute 0.6 -1.1 12.7 Outperform, underpinned by swift prospects
Major shareholders % held fleet expansion and ventures into The first rig will be delivered two
Ezra Holdings 25.0 higher-margin segments. The stock years from now but investors can look
Mercury Pacific Marine 10.6 remains our top small-cap oil & gas forward to a new revenue source and
Lynear Plus 9.3 pick. substantial earnings enhancement
from 2H14 onwards. Assuming 1) a
Moving up the value chain daily charter rate of US$150,000, 2) a
with new assets 25% pretax margin, 3) 350 utilisation
Perisai has been on a rapid days p.a., and 4) a Labuan tax
transformation trail. From just one structure, one rig could add RM40m
asset pipelay barge Enterprise 3 to Perisais net profit p.a.
in Apr 10, the company has since
added nine new assets, namely a Marginal fields may not be a
MOPU and eight marine support priority for now
vessels. All 10 assets are fully utilised Management has expressed interest
by clients that include Petronas, in participating in marginal field
leaving Perisai with no capacity to development but we think for now it
take on new jobs. will focus on the drilling venture and
Next on the agenda are rigs as Perisai financing for the two rigs, which may
ventures into drilling. It has ordered a stretch the companys balance sheet.
US$208m jack-up drilling rig and has As at 31 Mar 12, net gearing stood at
an option on another for US$210m. 0.9x.
The first rig will be delivered in Jul 14.
1.1
1.0 119
0.9 111
0.8 102 Revenue (RMm) 75.2 82.4 249.5 274.3 279.5
0.7 94
0.6 85
0.5 77 Net Profit (RMm) 10.27 21.28 90.42 95.09 96.72
0.4 68
60
Core EPS (RM) 0.02 0.04 0.11 0.12 0.12
Vol m
40
Core EPS Growth (69%) 163% 168% 5% 2%
20
FD Core P/E (x) 57.08 19.55 8.08 7.69 7.56
Jul-11 Oct-11 Jan-12 Apr-12 DPS (RM) - - - - -
Source: Bloomberg
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) 20.08 15.30 10.38 8.48 8.39
0.89 Net Gearing 71% 58% 166% 133% 114%
0.47 0.99 P/BV (x) 2.51 2.27 1.96 1.56 1.30
Recurring ROE 4.3% 12.1% 26.0% 22.6% 18.8%
1.53
Perisai Petroleum
July 26, 2012

Revenue 82.4 249.5 274.3 279.5 Fixed Assets 543 1,011 1,109 1,227
Cost Of Sales (23.44) (87.33) (96.00) (97.83) Other Long Term Assets 50.20 5.00 5.00 5.00
Gross Profit 59.0 162.2 178.3 181.7 Total Non-current Assets 594 1,016 1,114 1,232
Operating Profit 44.2 114.4 143.3 146.7 Inventories - - - -
Operating EBIT 44.2 114.4 143.3 146.7 Total Current Assets 55.87 58.66 61.59 64.67
Net Interest Income (3.29) (7.27) (28.25) (28.73) Trade Creditors 10.70 11.23 11.80 12.38
Associates' Profit (0.002) - - - Total Current Liabilities 135.6 257.5 240.5 241.7
Exceptional Items (14.02) 0.00 0.00 0.00 Other Liabilities
Net Profit 21.28 90.42 95.09 96.72

Pre-tax Profit 26.9 107.2 115.0 117.9 Revenue Growth 10% 203% 10% 2%
Depreciation And Non-cash Adj. 24.30 24.74 46.60 47.99 Operating EBITDA Growth 78% 102% 23% 3%
Tax Paid 0.39 (8.39) (9.75) (12.23) Net Cash Per Share (RM) (0.26) (0.76) (0.76) (0.79)
Cashflow From Operations 6.3 93.1 124.6 129.6 Gross Interest Cover 4.89 13.05 4.44 4.48
Capex (10.00) (10.00) (10.00) (10.00) Tax Rate 11.5% 9.1% 10.6% 10.8%
Disposals Of FAs/subsidiaries 30.71 11.86 12.45 13.07 Net Dividend Payout Ratio 0% 0% 0% 0%
Acq. Of Subsidiaries/investments (42.00) 0.00 0.00 0.00 Accounts Receivables Days 56.3 19.6 18.7 19.2
Cash Flow From Investing 20.71 1.86 2.45 3.07 Accounts Payables Days 162.7 46.0 43.8 45.1
Dividends Paid - - - -
Other Financing Cashflow (77.12) (73.30) (84.78) (84.78)
Cash Flow From Financing (14.8) 336.5 (111.1) (90.5)
Total Cash Generated 12.2 431.4 15.9 42.1
Change In Net Cash (53.41) 14.38 14.04 19.15
Free Cashflow To Equity 89.3 504.7 100.7 126.9
Key Drivers
34
Oil & Gas - Retail MALAYSIA
July 26, 2012
Petronas Dagangan
PETD MK / PETR.KL

RM20,863m RM12.18m 993.5 m shares Up/downside 11.4%
Conviction
CIMB Analyst On a superhighway

Amidst the upstream excitement in relation to marginal field
Norziana Mohd Inon development, pure downstream player PetDag steals the show, thanks
T (60) 3 20849645
E norziana.inon@cimb.com to its attraction as a growth and dividend stock. The retailer steps on
the gas with more domestic petrol stations and a regional expansion.
Our target price rises as we now value PetDag, which turns 30 this year, has
the stock at 18.6x CY13 P/E, a 40% proposed to pay Petronas US$62m
premium over our target market P/E, for six downstream companies in
which was raised recently from 13x to Malaysia, Thailand, Vietnam and the
Share price info
13.3x. PetDag remains an Outperform, Philippines with operations in the
supported by a bigger retail network LPG, lubricant and aviation fuel
Relative -5.1 5.9 12
and the prospect of being an segments. The target companies may
Absolute -3.1 9.4 16.8
all-round leader in Malaysia. not provide material returns for now
but development plans are already in
Petronas 69.9
Pulling out all the stops to be the pipeline. Their earnings
EPF 5.6
no. 1 overall momentum is expected to pick up in
Valuecap 2.9
PetDag supplies 60% of commercial 2-4 years time, around the time
demand and 50% of LPG (cooking gas) PetDag aims to be the no. 1 player
demand in Malaysia, making the across the board. Domestic growth
company the one to beat in the two opportunities may be limited by then
businesses. The company is second to and that is when the regional
Shell in the retail and lubricant expansion will come in very handy.
businesses but is definitely making
headway in its goal to wrest the top Refuel here for dividends
spot in the retail segment from Shell Cash-rich PetDag has been paying
in 2-4 years time and unseat Shell in consistent dividends, making the
the lubricant segment in four years stock very appealing to longer-term
time. This year, PetDag plans to open investors. The dividend policy of 50%
74 stations by year-end. It will be a payout and quarterly payments are
record as the company typically opens indicative of the companys
an average of 30 stations p.a. sustainable growth and cement its
status as a reliable dividend play.
Marking the 30th anniversary PetDags dividend yield tops the oil &
with a regional M&A gas list locally.
23.0
22.0 118
21.0 115 Dec-10A Dec-11A Dec-12F Dec-13F Dec-14F
20.0
19.0
111
107
Revenue (RMm) 22,631 28,005 31,521 33,576 34,751
18.0 103 Operating EBITDA (RMm) 1,403 1,453 1,794 1,941 2,016
17.0 100
16.0 96 Net Profit (RMm) 840 869 1,133 1,249 1,279
15.0 92
4
Core EPS (RM) 0.85 0.87 1.14 1.26 1.29
Vol m
3
2 Core EPS Growth 18.4% 3.4% 30.5% 10.2% 2.5%
1
FD Core P/E (x) 24.82 24.01 18.41 16.71 16.31
Source: Bloomberg
Dividend Yield 3.22% 3.74% 3.57% 3.57% 3.57%
EV/EBITDA (x) 14.38 13.83 11.15 10.26 9.83
21.00 Net Gearing (11.9%) (12.3%) (12.3%) (12.0%) (12.1%)
15.86 21.80 P/BV (x) 3.40 3.13 2.84 2.53 2.30
Recurring ROE 14.0% 13.6% 16.2% 16.0% 14.8%
23.40
Petronas Dagangan
July 26, 2012

(RMm) Mar-11A Dec-11A Dec-12F Dec-13F Dec-14F
Revenue 23,268 22,268 31,521 33,576 34,751
Fixed Assets 5,807 6,198 6,904 6,610
Other Operating Income
Cost Of Sales (21,824) (21,101) (29,725) (31,645) (32,741) Intangible Assets - - - -
Gross Profit 1,443 1,167 1,797 1,932 2,010 Other Long Term Assets 768.6 872.3 843.0 843.0
Total Operating Costs (257.9) (270.5) (283.7) (284.7) (288.0) Total Non-current Assets 6,575 7,070 7,747 7,453
Operating Profit 1,185 896 1,513 1,647 1,722 Total Cash And Equivalents 826 908 999 1,099
Operating EBITDA 1,443 1,097 1,794 1,941 2,016 Inventories 1,454 1,687 1,834 1,995
Depreciation And Amortisation (257.9) (200.5) (280.4) (294.0) (294.0) Accounts Receivable 3,695 4,163 4,344 4,543
Operating EBIT 1,185 896 1,513 1,647 1,722 Other Current Assets - - - -
Net Interest Income 23.09 1.88 18.56 20.35 20.35
Total Current Assets 5,974 6,758 7,177 7,637
Exchange Gains - - - - -
Other Income - - - - -
Trade Creditors 4,502 5,077 5,393 4,742
Associates' Profit 0.75 0.63 1.00 1.00 1.00 Short-term Debt - - - -
Profit Before Tax (pre-EI) 1,209 899 1,533 1,668 1,744 Other Current Liabilities 1,234 1,275 1,140 1,155
Exceptional Items - - - - - Total Current Liabilities 5,736 6,352 6,533 5,897
Pre-tax Profit 1,209 899 1,533 1,668 1,744 Total Long-term Debt - - - -
Taxation (333.0) (239.6) (392.4) (412.8) (457.3) Other Liabilities 90.00 90.00 90.00 90.00
Exceptional Income - post-tax Deferred Tax - - - -
Profit After Tax 876 659 1,140 1,256 1,286
Total Non-current Liabilities 90.00 90.00 90.00 90.00
Minority Interests (7.00) (4.77) (7.00) (7.00) (7.00)
Other Adjustments - post-tax
Shareholders' Equity 6,673 7,336 8,252 9,053
Net Profit 869 655 1,133 1,249 1,279 Minority Interests 50.00 50.00 50.00 50.00
Recurring Net Profit 869 655 1,133 1,249 1,279 Preferred Shareholders Funds
Total Equity 6 723 7 386 8 302 9 103

Revenue Growth 12.5% (4.3%) 41.6% 6.5% 3.5%
Pre-tax Profit 1,197 1,533 1,668 1,744 Operating EBITDA Growth 12.7% (24.0%) 63.5% 8.2% 3.9%
Depreciation And Non-cash Adj. 255.7 260.8 272.7 272.7 Operating EBITDA Margin 6.20% 4.93% 5.69% 5.78% 5.80%
Change In Working Capital (299.1) (279.5) (165.7) (180.4) Net Cash Per Share (RM) 0.76 0.83 0.91 1.01 1.11
Tax Paid (443.5) (403.2) (417.1) (432.6) BVPS (RM) 6.18 6.72 7.38 8.31 9.11
Other Operating Cashflow 344.9 281.7 281.7 281.7 Gross Interest Cover 1,168 111 2,514 2,737 2,862
Cashflow From Operations 1,055 1,392 1,640 1,685 Tax Rate 27.5% 26.7% 25.6% 24.7% 26.2%
Capex (623.3) (500.0) (500.0) (500.0) Net Dividend Payout Ratio 85.7% 91.1% 65.7% 59.7% 58.2%
Accounts Receivables Days 48.22 43.05 45.62 46.24 46.67
Disposals Of FAs/subsidiaries - - - -
Inventory Days 19.40 17.64 19.34 20.31 21.34
Acq. Of Subsidiaries/investments - - - - Accounts Payables Days 61.01 54.79 58.98 60.38 56.49
Other Investing Cashflow (96.96) (80.98) (83.38) (85.52) ROIC (%) 15.5% 11.4% 17.9% 17.8% 16.4%
Cash Flow From Investing (720.3) (581.0) (583.4) (585.5) ROCE (%) 19.6% 14.0% 21.7% 21.3% 20.0%
Debt Raised/(repaid) - - - -
Equity Raised/(Repaid) - - - -
Dividends Paid (1,238) (993) (844) (844)
Net Cash Interest 310.2 155.4 126.0 93.2
Total Cash Generated (593.3) (26.5) 338.1 348.3
Change In Net Cash (593.3) (26.5) 338.1 348.3
Free Cashflow To Equity 645 967 1,183 1,193
Key Drivers
ASP (% chg, main prod./serv.) 38.1% 13.8% 3.4% 3.3% 3.2%
Vol. sales grth (%,main prod/serv) 2.0% 9.3% 2.0% 2.0% 2.0%
No. Of Petrol Stations 955 968 1,042 1,072 1,102
36
July 26, 2012
SapuraKencana Petroleum
SAKP MK / SKPE.KL

Conviction
CIMB Analyst All pumped up for Berantais

Norziana Mohd Inon first gas
T (60) 3 20849645
E norziana.inon@cimb.com SapuraKencana is set to celebrate the first flow of gas at Berantai next
month. The marginal field project contributes to the companys
massive RM15bn order book, which will last until FY1/20, but
management is already scouring for more marginal field jobs.
Our target price increases as we now Petrofac, its partner for the Berantai
Share price info value the stock at 18.6x CY13 P/E, a project.
Share price perf. (%) 1M 3M 12M 40% premium over our target market
Relative 4.7 P/E, which was raised recently from Getting hot in Brazil
Absolute 6.7 13x to 13.3x. Strong order book Joining hands with Norways Seadrill,
Major shareholders % held momentum, aggressive Brazil SapuraKencana has staked a claim in
Sapura Technology 19.0 expansion and a swift newbuild the Brazilian oil & gas marketplace,
Khasera Baru 15.9 programme support our Outperform thanks to the US$1.4bn contract from
EPF 12.6 call. SapuraKencana remains our top state-owned Petrobras. Brazil makes
pick for oil & gas big caps. up 28% of the order book, with the
Petrobras order the single largest job.
Berantai fires up SapuraKencana and Seadrill are
Fresh from the completion of the currently working on their second bid
merger in May, SapuraKencana is in Brazil.
riding on a huge capex programme in
Malaysia and Brazil and boasts an Seven new assets in 2014
order book of RM15bn, which is the The merged entitys combined fleet of
largest in the sector. Set to produce specialised assets, which includes six
first gas next month, Berantai drilling rigs, four derrick lay vessels
marginal field development is one of and a pipelay/diving support vessel
the companys key projects and a (PLSV), makes it a formidable
major contributor to its attractive contender for larger and more
3-year EPS CAGR of 39%. complex jobs. The fleet will undergo
Management has set its sights on extensive expansion in 2014 when
RM12.5bn worth of projects, not seven new assets - two rigs, two
including potential new marginal derrick lay vessels and three PLSVs -
field jobs that it is bidding for with are delivered.
2.6
2.5 112
2.4 109 Jan-11A Jan-12A Jan-13F Jan-14F Jan-15F
2.3
2.2
106
103
Revenue (RMm) 4,347 4,673 5,468 5,814 6,850
2.1 99 Operating EBITDA (RMm) 678 715 756 1,014 1,212
2.0 96
1.9 93 Net Profit (RMm) 307.9 454.5 467.5 821.3 991.8
1.8 90
250
Core EPS (RM) 0.06 0.09 0.09 0.16 0.20
Vol m
200
150
100
Core EPS Growth 31.8% 47.6% 2.9% 75.7% 20.8%
50 FD Core P/E (x) 38.85 26.31 25.58 14.56 12.06
May-12 Jun-12 Jun-12 Jul-12 DPS (RM) - - - 0.030 0.030
Source: Bloomberg
Dividend Yield 0.00% 0.00% 0.00% 1.26% 1.26%
EV/EBITDA (x) 20.82 19.82 19.66 14.65 12.25
52-week share price range P/FCFE (x) 128.6 97.3 NA 77.2 79.3
2.39 Net Gearing 40.2% 41.1% 49.9% 45.7% 41.5%
1.94 2.47 P/BV (x) 2.23 2.22 2.22 2.22 2.22
Recurring ROE 5.9% 8.5% 8.7% 15.2% 18.4%
2.97
SapuraKencana Petroleum
July 26, 2012

(RMm) Jan-12A Jan-13F Jan-14F Jan-15F (RMm) Jan-12A Jan-13F Jan-14F Jan-15F
Revenue 4,673 5,468 5,814 6,850 Fixed Assets 7,502 7,709 8,094 8,499
Gross Profit 739 807 1,067 1,298 Total Non-current Assets 7,739 7,958 8,355 8,773
Total Operating Costs (186.9) (221.4) (231.2) (273.4) Total Cash And Equivalents 2,111 1,230 1,267 1,305
Operating Profit 552 586 835 1,025 Inventories 88.28 90.93 93.66 96.47
Operating EBITDA 715 756 1,014 1,212 Accounts Receivable 1,927 1,985 2,044 2,106
Operating EBIT 552 586 835 1,025 Total Current Assets 4,174 3,355 3,456 3,560
Net Interest Income (26.29) (42.15) (44.30) (43.45) Trade Creditors 2,140 1,624 2,045 2,505
Exchange Gains - - - - Short-term Debt 1,066 1,077 1,087 1,098
Other Income 162.4 177.6 331.0 344.5 Other Current Liabilities 18.4 109.8 151.3 177.7
Associates' Profit (0.31) 1.00 1.00 1.00 Total Current Liabilities 3,225 2,811 3,284 3,781
Profit Before Tax (pre-EI) 688 722 1,123 1,327 Total Long-term Debt 3,257 2,917 2,781 2,638
Pre-tax Profit 688 722 1,123 1,327 Deferred Tax 51.71 50.00 50.00 50.00
Taxation (90.4) (104.5) (146.0) (172.5) Total Non-current Liabilities 3,311 2,969 2,833 2,690
Exceptional Income - post-tax Shareholders' Equity 5,378 5,383 5,388 5,394
Profit After Tax 598 618 977 1,154 Minority Interests 0.0 150.1 305.9 468.3
Other Adjustments - post-tax Total Equity 5,378 5,533 5,694 5,862
Net Profit 454.5 467.5 821.3 991.8

(RMm) Jan-12A Jan-13F Jan-14F Jan-15F Jan-12A Jan-13F Jan-14F Jan-15F
Pre-tax Profit 688 722 1,123 1,327 Revenue Growth 7.5% 17.0% 6.3% 17.8%
Depreciation And Non-cash Adj. 188.8 211.5 222.1 230.2 Operating EBITDA Growth 5.4% 5.8% 34.1% 19.5%
Change In Working Capital 100.0 350.0 358.9 395.4 Operating EBITDA Margin 15.3% 13.8% 17.4% 17.7%
Other Operating Cashflow 0.0 197.6 55.0 (127.2) BVPS (RM) 1.07 1.08 1.08 1.08
Cashflow From Operations 912 1,391 1,655 1,679 Gross Interest Cover 9.01 7.23 9.83 11.21
Capex (865) (1,475) (1,504) (1,534) Tax Rate 13.1% 14.5% 13.0% 13.0%
Other Investing Cashflow - - - - Inventory Days 8.09 7.04 7.10 6.25
Cash Flow From Investing (862) (1,471) (1,501) (1,531) Accounts Payables Days 194.3 147.8 141.1 149.6
Dividends Paid (78.56) (80.13) (81.73) (83.36)
Total Cash Generated 44.3 (157.7) 73.2 67.5
Change In Net Cash (54.6) (202.7) 27.8 21.6
Free Cashflow To Equity 122.9 (77.6) 155.0 150.9
Key Drivers
Jan-12A Jan-13F Jan-14F Jan-15F
Outstanding Orderbook (RMm) 7,672.6 14,000.0 11,449.8 9,635.8
Order Book Wins (RMm) 3,000.0 3,000.0 4,000.0 4,000.0
Orderbook Depletion (RMm) 4,672.6 5,550.2 5,814.0 6,850.0
38
July 26, 2012
Wah Seong Corp

WSC MK / WAHE.KL

RM1,449m RM0.70m 774.9 m shares Up/downside 37.8%
Conviction
CIMB Analyst Banking on future Energy

Wah Seong is set for exciting times given its potential exposure to
Norziana Mohd Inon marginal field development via its prospective 26.9% equity in Petra
T (60) 3 20849645
E norziana.inon@cimb.com Energy. The company is also hoping to add the North Malay Basin
contract to its order book.
Our target price rises as we now value If Petra emerges as Coastals local
the stock at our revised CY13 target partner with a 30% equity in the
market P/E of 13.3x vs. 13x previously. SFRSC, this will augur well for Wah
The equity stake in Petra is a Seong as it will have an effective 8%
Share price info
longer-term positive and adds to the exposure to the contract. Assuming
appeal of Wah Seong, which has KBMs size and terms are the same as
Relative -4.6 -10 -24.9
bright pipe coating order book Berantais, Wah Seong will enjoy an
Absolute -2.6 -6.5 -20.1
prospects. Maintain Outperform. extra coating of net profit of around
Wah Seong (Malaya) Trading
RM24m effective FY15.
Co Sdn Bhd
32.7 Ongoing acquisition
Chan Cheu Leong 7.5 Wah Seong is in the midst of Eyeing new projects
acquiring Perdanas 26.9% stake in Fresh from securing Petronas
Petra, which is believed to be closing Carigalis US$75m pipe coating
in on a Petronas small field risk contract in Turkmenistan recently,
service contract (SFRSC) for a management is now eyeing the pipe
marginal field development. It has coating portion of the North Malay
been reported that Petras Basin, which could be worth at least
management has confirmed it is in RM600m. Work is expected to begin
talks with Coastal Energy about the next year and could come in handy
prospect of participating in an SFRSC given the scheduled completion of
to develop the Kapal, Banang and Wah Seongs two major contracts,
Meranti (KBM) cluster located namely Kebabangan and Asia Pacific
offshore Peninsular Malaysia. Coastal LNG, this year. In Australia,
secured the SFRSC earlier this month potentially on offer is Chevrons
but did not identify the local partner. Gorgon Phase 2. As at 31 Mar 12, Wah
Seong had RM1.2bn worth of jobs in
An indirect marginal field hand.
play?
2.4
2.3 103
2.2 98
2.1 93 Revenue (RMm) 1,373 1,889 1,703 1,803 1,827
2.0 88
1.9 83
1.8 78 Net Profit (RMm) 51.9 110.4 152.3 158.8 165.0
1.7 73
5
Core EPS (RM) 0.07 0.15 0.21 0.22 0.22
Vol m
4
3
2
Core EPS Growth (60%) 112% 38% 4% 4%
1 FD Core P/E (x) 30.51 14.36 10.40 9.65 8.87
Source: Bloomberg
Dividend Yield 1.32% 3.11% 3.80% 3.89% 4.05%
EV/EBITDA (x) 10.39 6.39 4.75 4.69 4.59
52-week share price range P/FCFE (x) 4.51 NA 31.37 25.10 18.60
1.87 Net Gearing (38.2%) (34.5%) (32.7%) (32.0%) (34.4%)
1.79 2.32 P/BV (x) 2.99 2.57 2.41 2.34 2.70
Recurring ROE 11.1% 22.2% 27.5% 27.3% 30.0%
2.58
Wah Seong Corp
July 26, 2012

Revenue 1,889 1,703 1,803 1,827 Fixed Assets 801.2 866.8 912.3 872.0
Gross Profit 379.8 292.2 301.8 315.8 Total Non-current Assets 899 969 1,019 979
Operating Profit 159.3 258.9 265.1 275.5 Inventories 126.0 132.3 139.0 145.9
Operating EBIT 159.3 258.9 265.1 275.5 Total Current Assets 1,038 1,073 1,110 1,145
Net Interest Income 18.55 (42.44) (44.67) (46.02) Trade Creditors 237.0 248.9 261.3 274.4
Associates' Profit (4.61) 10.37 15.13 16.13 Total Current Liabilities 824.6 850.5 877.9 906.0
Net Profit 110.4 152.3 158.8 165.0

Pre-tax Profit 173.3 226.8 235.6 245.6 Revenue Growth 37.6% (9.9%) 5.9% 1.3%
Depreciation And Non-cash Adj. 39.76 65.41 66.20 70.22 Operating EBITDA Growth 64.5% 37.2% 3.3% 4.6%
Change In Working Capital 2.30 2.41 2.53 2.66 Operating EBITDA Margin 11.3% 17.2% 16.7% 17.3%
Tax Paid (10.77) (28.85) (35.84) (36.80) Net Cash Per Share (RM) 0.37 0.39 0.40 0.41
Cashflow From Operations 166.0 208.9 213.9 227.1 Gross Interest Cover 7.26 5.40 5.28 5.24
Capex (58.00) (57.00) (56.00) (55.00) Tax Rate 24.3% 15.8% 15.6% 15.6%
Disposals Of FAs/subsidiaries (89.40) (87.40) (85.40) (83.40) Net Dividend Payout Ratio 38.8% 34.4% 33.8% 33.8%
Other Investing Cashflow (15.62) (14.62) (13.62) (12.62) Inventory Days 29.75 33.52 32.99 34.41
Equity Raised/(Repaid) 0.00 0.00 0.00 1.00 ROCE (%) 16.8% 20.6% 19.8% 20.3%
Dividends Paid (13.09) (30.81) (37.67) (38.61)
Total Cash Generated (18.1) 13.1 17.2 36.5
Change In Net Cash (30.1) 0.1 3.2 21.5
Key Drivers
Outstanding Orderbook (RMm) 1,300.0 1,300.0 1,300.0 1,300.0
Order Book Wins (RMm) 500.0 500.0 500.0 500.0
Orderbook Depletion (RMm) 500.0 500.0 500.0 500.0
No. Of Ships (unit) - - - -
40
July 26, 2012
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July 26, 2012
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Corporate Governance Report:
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The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does
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Score Range 90 100 80 89 70 79 Below 70 or No Survey Result
Description Excellent Very Good Good N/A
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Recommendation Framework #1 *
Stock Sector
OUTPERFORM: The stock's total return is expected to exceed a relevant OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to outperform the relevant primary market index over the next 12 months.
NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected
benchmark's total return. to perform in line with the relevant primary market index over the next 12 months.
UNDERPERFORM: The stock's total return is expected to be below a relevant UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 12 months. expected to underperform the relevant primary market index over the next 12 months.
TRADING BUY: The stock's total return is expected to exceed a relevant TRADING BUY: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to outperform the relevant primary market index over the next 3 months.
TRADING SELL: The stock's total return is expected to be below a relevant TRADING SELL: The industry, as defined by the analyst's coverage universe, is
benchmark's total return by 5% or more over the next 3 months. expected to underperform the relevant primary market index over the next 3 months.
* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected
returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)
42
July 26, 2012
Recommendation Framework #2 **
Stock Sector
OUTPERFORM: Expected positive total returns of 10% or more over the next 12 OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of +10% or better over
the next 12 months.
NEUTRAL: Expected total returns of between -10% and +10% over the next 12 NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i)
months. an equal number of stocks that are expected to have total returns of +10% (or better)
or -10% (or worse), or (ii) stocks that are predominantly expected to have total returns
that will range from +10% to -10%; both over the next 12 months.
UNDERPERFORM: Expected negative total returns of 10% or more over the next 12 UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of -10% or worse over
the next 12 months.
TRADING BUY: Expected positive total returns of 10% or more over the next 3 TRADING BUY: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of +10% or better over
the next 3 months.
TRADING SELL: Expected negative total returns of 10% or more over the next 3 TRADING SELL: The industry, as defined by the analyst's coverage universe, has a
months. high number of stocks that are expected to have total returns of -10% or worse over
the next 3 months.
** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2011.
ADVANC - Excellent, AMATA - Very Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCP - Excellent, BEC - Very Good, BECL -
Very Good, BGH - not available, BH - Very Good, BIGC - Very Good, BTS - Very Good, CCET - Good, CK - Very Good, CPALL - Very Good, CPF - Very Good, CPN - Excellent,
DELTA - Very Good, DTAC - Very Good, GLOBAL - not available, GLOW - Very Good, HANA - Very Good, HEMRAJ - Excellent, HMPRO - Very Good, ITD - Good, IVL - Very
Good, KBANK - Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR - Very Good, MCOT - Excellent, MINT - Very Good, PS - Excellent, PSL - Excellent, PTT -
Excellent, PTTGC - not available, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI - Very
Good, SPALI - Very Good, STA - Very Good, STEC - Very Good, TCAP - Very Good, THAI - Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Very Good,
TUF - Very Good:
43
July 26, 2012
Asia-Pacific Locations:
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(18417-M) (198701621D) (01.353.099.3-054.000)
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Securities Bhd) #19-00 Tower II, 20th Floor
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F: +60 (3) 2084 8899
CIMB Securities (HK) Ltd CIMB Securities (Thailand) Co. Ltd. CIMB in Association with
(290697) (0105542081800) SB Equities, Inc.
Units 7706-08, Level 77 44 CIMB, Thai Bank Building Security Bank Centre, 18th Flr.
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MALAYSIA

July 26, 2012

OIL & GAS -

3. SWOT ANALYSIS ..................................................................................................... 19

5. VALUATION AND RECOMMENDATION ............................................................. 21

INDONESIA & SVS

CHINA, HONG KONG Conviction

Notes from the Field Fields of gold

Figure 1: Petronas's capex, 2003-16F (RM bn)

Capex quantum will be 50

rising costs, upgrade asset 30

more challenging, green 0

Brent rebounded to above US$100/barrel 140

Oil & gas is the biggest ETP winner

Marginal fields to reverse production

Malaysias oil production has been on a declining trend

development is among Petronass core efforts to increase

and boost reserves

SOURCE: CIMB, COMPANY REPORTS

Figure 2: Sector comparisons

SOURCES: BNM, MOF

Figure 4: Petronas's payments to government, 2001-9M11 (RM bn)

1.2 An ETP initiative

Figure 5: EPPs for oil, gas and energy NKEA

1.3 Share price momentum picks up

2.2 Tax incentives improve project viability

Figure 9: Tax incentives for marginal field development

2.3 Part of Petronass massive RM300bn capex

Figure 11: RSCs awarded so far

2.4 RSC offers greater incentives than PSC

Figure 12: PSC vs. RSC

Figure 13: RSC flow chart

SOURCES: ROC OIL

Figure 14: Key RSC terms for Balai cluster

SOURCES: ROC OIL

No exposure to oil price volatility

expected to hit 20,000 bpd. These do not justify commercialising development

the deepwater production of Shells Gumusut and Kakap fields in offshore

Figure 15: SapuraKencanas enlarged asset base

as the operator. An ExxonMobil representative has been quoted as saying that

4.3 Late asset deliveries

5. VALUATION AND RECOMMENDATION

Petronas Dagangan Perisai FBM KLCI SapuraKencana Dialog

Figure 19: Target price valuations

Figure 20: Dialogs previous sum-of-parts valuation

FY13 net profit P/E Value

Net cash (RM m) 360

SOP valuation (RM m) 7,616

Figure 21: Dialog's revised sum-of-parts valuation

FY13 net profit P/E Value

Net cash (RM m) 360

SOP valuation (RM m) 7,670

Figure 22: Perdanas RNAV calculation

Market Cap Avg Daily Turnover Free Float Target RM4.87

CIMB Analyst Hope floats for direct marginal

SOURCE: CIMB, COMPANY REPORTS

Profit & Loss Balance Sheet

Cash Flow Key Ratios

SOURCE: CIMB, COMPANY REPORTS

Market Cap Avg Daily Turnover Free Float Target RM2.95

CIMB Analyst Two big ETP projects speak

SOURCE: CIMB, COMPANY REPORTS

Profit & Loss Balance Sheet