Oil and Gas Valuation Benchmarks

1. Oil and Gas Valuation Benchmarks Alliance Research Sdn Bhd Head of Research : Soh Meng Hui 11 June 2008

2. Oil prices continue to chalk up new record highs Fundamentally, as long as supply and demand continues to remain tight, the risk premium will still keep increasing. Any negative newsflow will continue to fuel prices, especially heading towards hurricane season, which officially starts 1st June. On a technical basis, the US$122 is now the new support level. The market has managed to consolidate around the US$125-level without a significant retracement despite the steep run-up to this level. Global oil supply & demand High oil prices will extend the global slump Source: OPEC Strong support at US$122-level Source: Bloomberg

3. Malaysian - Oil and Gas - PER of 9.2x FY09 earnings Source: Bloomberg

4. Regional - Oil and Gas stocks - PER of 13.5x FY09 earnings Source: Bloomberg

5. Matrix of Malaysian oil and gas value chain Source: Various

6. Scomi Marine Coastal Contract Dialog KNM Group Source: Bloomberg

7. Muhibbah Petra Perdana Sapura Crest Wah Seong Group Source: Bloomberg

8. Recently listed Oil and Gas Stock – Petra Energy Major shareholders : Petra Perdana 64.6% (At IPO) Listing Details Price RM1.74-Price is adjusted for 1-for-2 bonus issue IPO price RM2.62 Listing sought Main Board Listing date 23 July 2007 Issue size Shares (m) Malaysian public 6.5 Restricted Offer for Sale 6.8 Placement 32.7 Total 46.0 Prospectus Forecast Net profit (RM m) 34.5 EPS (sen) 17.7 DPS (sen) 4.0 IPO PER (x) 9.8 Principal activities Petra Energy is chiefly involved in providing a wide spectrum of brown field services to the E&P oil and gas players. More specifically, Petra Energy provides a suite of engineering and fabrication services. Petra Energy’s ancillary service is the re-chartering of domestic vessels Source: Bloomberg

9. Recently listed Oil and Gas Stock – Deleum Major shareholders : Datuk Vivekananthan a/l M.V. Nathan - 31% (Indirect - 20%) Listing Details Price RM2.55 Listing sought Main Board Listing date 1 June 2007 Issue size Shares (m) Malaysian public and employees 8.0 Placement 6.0 Offer for sale 6.5 Total 20.5 Prospectus Forecast Net profit (RM m) 23.0 EPS (sen) 28.8 DPS (sen) 14.4 IPO PER (x) 8.8 Principal activities Deleum Bhd is chiefly involved in 1) the provision of specialised equipments & services such as subsea production systems & gas turbine packages, 2) after sales-services including overhaul, maintenance & technical services & provision of drilling rig operations, and 3) provision of oilfield chemicals & services. Source: Bloomberg

10. Recently listed Oil and Gas Stock – Dayang Enterprise Major shareholders : Naim Cendera Holdings Berhad 34.0% Vogue Empire Sdn Bhd 15.6% Tengku Yusof bin Tengku Ahmad Shahruddin 14.9% Listing Details Price RM1.45 Listing sought Main Board Listing date 28 April 2008 Issue sizeShares (m) Malaysian public 17.6 Directors and employees 8.5 Identified investors 59.8 Total 83.4 Prospectus Forecast Net profit (RM m) 45.2 EPS (sen) 12.8 IPO PER (x) 8.8 Principal activities Enterprise Berhad (Dayang) is chiefly involved in providing a spectrum of services to the E&P oil and gas players. More specifically, Dayang provides a spectrum of brown field as well as green field services (offshore topside maintenance services and offshore hook-up and commissioning), charter of marine vessels and minor fabrication Source: Bloomberg

11. Offshore Support Vessels – Trading at 9.8x FY09 earnings Source: Bloomberg • According to Clarkson, the vessels aged more than 20 years old account for 68% of global offshore fleets. Lifespan of a vessel can extend up to 35 years. However, oil companies generally cap them at 20 years, with vessels newer than 15 years old being preferred. • As such, the shortage of vessels has led to an upward pressure in charter rates domestically and globally. Charter rates have shot up by 30%-50% over the last two years. • Players in this segment are currently trading at 9x-11x FY09 PER compared to historical PER band of 15x-30x. • Offshore support vessels players expect to command a higher PER valuation due : 1) to its superior gross profit margins of 30 - 40%; 2) to the sustained high charter rates which is jumping from ‘good’ to ‘great and 3) visible earnings growth coming from both volume growth from new vessels and high charter rates.

12. Fabricators – Trading at 10.4x FY09 earnings Source: Bloomberg • According to Institute Applied Energy (IAE), global capital expenditure is projected at US$2.6trn in • 2006-2030 or US$104bn per annum. Around 10% of the global capital expenditure goes to process • equipment. • KNM, the biggest player in terms of market capitalisation and earnings is trading at 12.8x FYO9 • EPS • Valuations are expected to improve on the back of : • - Tight capacity constraint due to the booming oil and gas sector • - Potential M&A play starting from the reverse-takeover of Ramunia from MISC. Via sale of its • wholly-owned subsidiary Malaysia Marine and Heavy Engineering (MMHE) for RM3.2bn. The • acquisition PER for MMHE works out to be 19.5x FY03/07 PER. • Historically, oil and gas fabricators trades at 10x-30x PER band.

13. Trading engineering equipment and maintenance - Trading at 10.4x FY09 earnings Source: Bloomberg • Players are largely exclusive agent for foreign principals for various engineering equipment including specialised equipments & services such as subsea production systems & gas turbine packages, after sales-services including overhaul, maintenance & technical services & provision of drilling rig operations, and provision of oilfield chemicals & services. • Valuations would be less exciting as players merely acting as agents earning 10%-20% margins. • Historically, engineering equipment and maintenance players trades at 8x-20x PER band.

14. Integrated brownfield and greenfield services - Trading at 8.9x FY09 earnings Source: Bloomberg • Integrated brownfield and greenfield service players chiefly involved in providing a spectrum of a spectrum of bronwfield as well as greenfield services includes offshore topside maintenance services and offshore hook-up and commissioning, charter of marine vessels and fabrication. • Recently listed Petra Energy and Dayang Enterprise fetches an IPO PER of 9.8x and 14.1x respectively based on prospectus forecast at the time of listing. • SapuraCrest, the bigger of the three in terms of market capitalisation is trading at 9.9x FY09 EPS. • Historically, Integrated brownfield and greenfield players trades at 9x-18x PER band.

15. Shipbuilder - Trading at 7.5x FY09 earnings Source: Bloomberg • Based on industry players, deepwater capable offshore vessels namely AHT, AHTS and platform supply vessels only account to about 30% of entire 2,400 global offshore fleet. About 50% of the global fleet are more than 20 years old. Hence, new offshore vessels would swiftly be taken up for deepwater E&P activities and replacement of old vessels. • Coastal Contracts and Muhibbah Engineering are enjoying the price ride as well earnings solid 20%-30% margins despite facing escalating material costs such as steel. • Should garner higher valuation due to their superior profit margins and tight supply conditions. • Historically, these players trades at 8x-20x PER band.

16. Refinery and retailing – Trading at 11.4x FY09 earnings Source: Bloomberg • Petronas Dagangan principally operates the local retail business of Petronas, Malaysia’s national oil giant. PDB is the biggest local oil & gas company by market capitalisation. • Shell Refining Company refines and manufactures petroleum products and is the key supplier to Shell Oil Products’ businesses in Malaysia (Shell Malaysia). • Low valuation due to supply constraint and offer value. • Historically, these players trades at 5x-14x PER band.

17. Bright prospects, solid valuations Source: Bloomberg • Oil & gas asset owners should command a higher valuation having the best leverage in this upcycle amid tight supply situation. • M&A activities to drive valuations - asset owners are prime targets for mergers and acquisition which could potentially trigger an upward re-rating of the companies’ value. • Malaysian Oil and gas companies are trading at a modest discount to its regional peers. • Offshore support vessels and fabricators should command higher valuations. • Shipbuilders, retailers, refiners may face supply constraint.

18. Speaker’s Profile - Soh Meng Hui

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