Offshore & Marine SINGAPORE

May 10, 2012

Otto Marine
OTML SP / OTTO.SI Current S$0.097 S$0.080 S$0.10 -17.8%

1QFY12 RESULTS NOTE

SHORT TERM (3 MTH) LONG TERM

Market Cap

Avg Daily Turnover

Free Float

Target Previous Target Up/downside

US$219.4m
S$275.1m

US$0.82m
S$1.03m

26.8%
2,836 m shares

CIMB Analyst

Still a long way to go

At 59% of our full-year loss forecast, 1Q12 core loss is worse than expected, by both CIMB and the market, on weaker-than-expected revenue. Earnings visibility is poor, made worse by convoluted chartering arrangements. We are unable to detect any turnaround.
Factoring in its recent rights dilution and weaker profitability, we slash our EPS for FY12-14 by 22-101%. Still at 0.6x CY12 P/BV (bottom end of its trading range), our target price has been reduced. Maintain Underperform. are watchful of declining utilisation for its owned chartering fleet.

Convicti on

Yeo Zhi Bin

T (65) 62108669 E [email protected]

Financial risks remain alleviated

Despite US$60.5m of proceeds from its rights issue, we expect net gearing to remain high at 1.4x for FY12 (FY11: 1.8x) against poor operating-cash generation. We project US$6.6m of outflows for FY12.

1Q underwhelmed
Share price info
Share price perf. (%) Relative Absolute Major shareholders Yaw Chee Siew Lee Kok Wah Standard Chartered Private 1M -7.4 -9.4 3M -35.7 -38.4 12M -42.4 -49.9 % held 63.6 5.3 4.3

All segments continued to underperform. Shipbuilding lost money at the gross level following order-book depletion and costs overrun. Leasing contributions declined after the sale of two vessels (10,000 bhp AHTS sold to a related party, Hako Offshore). Geophysicals loss was larger than expected on low utilisation. Chartering revenue was at least aided by its Australian ship-broking subsidiary, Go Marine. However, we

Recovery cannot come quickly enough

A sale of Mosvold vessels could immediately turn its fortunes but our confidence wanes after a 2-year wait. With operating hurdles at its geophysical business, heightened financial risks and question marks over the Mosvold vessels, a turnaround is now at best a year away, we reckon.

Results Comparison
FYE Dec (US$ m) Revenue Operating costs EBITDA EBITDA margin (%) Depn & amort. EBIT Interest expense Interest & invt inc Associates' contrib Exceptionals Pretax profit Tax Tax rate (%) Minority interests Net profit EPS (US cts) Core Net profit Core EPS (US cts) 1QFY12 119.8 (116.8) 3.0 2.5 (5.3) (2.3) (4.9) 0.2 0.8 (1.8) (8.0) (0.3) (3.8) (0.7) (9.0) (0.5) (7.1) (0.4) 1QFY11 88.5 (79.8) 8.7 9.8 (2.1) 6.5 (4.1) 0.3 1.7 (1.0) 3.5 (0.2) 6.9 2.3 5.5 0.3 6.5 0.3 yoy % chg 35.4 46.4 (65.5) 146.6 (135.6) 20.4 (35.9) (52.8) nm (331.9) 28.6 nm (264.1) (264.1) (210.5) (210.5) qoq % chg (25.8) (28.3) 328.5 (7.1) (67.0) 52.8 131.2 43.9 (119.6) 648.0 (144.2) 2,299.6 nm nm (25.5) (25.5) Prev. FY12F 450.5 (422.8) 27.7 6.1 (20.3) 7.4 (20.3) 1.0 1.6 (10.3) (0.3) (3.0) (1.4) (12.0) (0.5) (12.0) (0.5) Comments Below due to lower geophysical & leasing revenue Broadly in line Below, losses from shipbldg & lower leasing contributions Below In line Below, in line with decline in EBITDA In line Below Above Below, in line with decline in EBIT Above

Below, losses from shipbldg & lower leasing contributions Below Below, core loss forms 59% of full-yr loss Below

SOURCE: CIMB, COMPANY REPORTS

IMPORTANT DISCLOSURES. INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT.
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Otto Marine
May 10, 2012

0.25 0.20 0.15 0.10 0.05 0.00 50 40 30 20 10

May-11

Price Close

Relative to FSSTI (RHS)

107 95 83 71 59 47

Financial Summary
Revenue (US$m) Operating EBITDA (US$m) Net Profit (US$m) Core EPS (US$) Core EPS Growth FD Core P/E (x) DPS (US$) Dividend Yield EV/EBITDA (x) P/FCFE (x) Net Gearing P/BV (x) Recurring ROE % Change In Core EPS Estimates CIMB/consensus EPS (x) Dec-10A 425.6 52.62 25.27 0.022 2% 3.80 0.004 4.74% 9.40 NA 104% 0.45 13.6% Dec-11A 414.3 (26.88) (54.01) (0.025) (213%) NA 0.00% NA NA 183% 0.56 (15.9%) Dec-12F 426.9 22.12 (15.81) (0.006) (74%) NA 0.00% 26.11 8.94 144% 0.64 (5.0%) (22%) 2.11 Dec-13F 457.9 41.95 (0.06) (0.000) (100%) NA 0.00% 16.44 28.35 153% 0.64 (0.0%) (101%) (0.00) Dec-14F 492.3 48.45 4.01 0.001 na 54.73 0.00% 14.12 4.79 149% 0.64 1.2% (74%) 0.16

Vol m

Aug-11

Nov-11

Feb-12

Source: Bloomberg

52-week share price range

0.100 0.097 0.21

0.080
Current Target

SOURCE: CIMB, COMPANY REPORTS

Figure 1: Quarterly performances

Sales breakdown (US$m) 1Q11 1Q12 43.1 62.4 2.9 8.3 3.1 119.8 1Q12 (2.0) 10.3 2.8 (3.3) (0.8) 7.0 1Q12 -5% 17% 97% -40% -25% 6% % yoy chg -36% 1157% -39% 1% 5% 35% % yoy chg -119% 639% -41% -19% -230% -44% Comments for 1Q12 In line In line Below, due to sale of 2 vessels Below, lower-than-expected utilisation In line Comments for 1Q12 Below due to costs overrun Above, due to better-than-expected Go Marine contributions Below, in line with decline in revenue Above, larger-than-expected loss Below, expected a small profit

Shipbuilding, ship repair & conversion 67.6 Chartering 5.0 Leasing 4.7 Geophysical 8.2 Subsea 3.0 Total 88.5 Gross profit breakdown (US$m) 1Q11

Shipbuilding, ship repair & conversion 10.1 Chartering 1.4 Leasing Geophysical Subsea Total 4.7 (4.1) 0.6 12.6

Gross margin 1Q11 Shipbuilding, ship repair & conversion 15% Chartering 28% Leasing 100% Geophysical -50% Subsea 20% Overall blended margins 14%

SOURCES: CIMB, COMPANY REPORTS

Figure 2: 12-month rolling forward core P/E

70.00 60.00 50.00 40.00 30.00 20.00 10.00

Figure 3: Rolling P/BV

2.00 1.80 1.60 1.40

Title: Source:

+1SD: 1.8x

Please fill in the values above to have them entered in your report

Ave (Nov08-11): 1.3x

+1SD: 28.8x

1.20 1.00

-1SD: 0.9x

Ave (Nov08-11): 15.3x

0.80 0.60

-1SD: 1.8x
Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 0.40 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11

12M - Forw ard FD Core P/E (x)

Rolling P/BV (x)

SOURCES: CIMB, BLOOMBERG

SOURCES: CIMB, BLOOMBERG

Otto Marine
May 10, 2012

Figure 4: Peers Comparison

Bloomberg Ticker Price (lcl curr) Target Price (lcl curr) Market Cap (US$ m) Core P/E (x) CY2012 CY2013 2-year EPS CAGR (%) P/BV (x) CY2012 Recurring ROE (%) CY2012 Dividend Yield (%) CY2012

Company

Recom.

Singapore offshore - big cap Keppel Corporation KEP SP SembCorp Marine SMM SP Cosco Corporation COS SP Yangzijiang Shipbuilding YZJ SP Singapore offshore - big cap weighted average

Outperform Outperform Underperform Outperform

10.50 4.78 0.97 1.08

14.80 6.50 0.92 1.43

15,025 7,961 1,733 3,301

11.2 14.8 16.1 5.7 10.9

11.5 13.2 15.8 6.1 11.0

4.3% 0.3% -0.5% -6.3% 0.7%

2.25 3.73 1.58 1.33 2.26

21.0% 26.3% 9.9% 25.7% 21.8%

4.0% 5.2% 2.8% 4.4% 4.3%

Singapore-listed OSV builder ASL Marine ASL SP Outperform Jaya Holdings Ltd JAYA SP NR Marco Polo Marine Ltd MPM SP NR Nam Cheong Ltd NCL SP NR Otto Marine OTML SP Underperform STX OSV SOH SP Outperform Singapore-listed OSV builder (weighted avg - excl NR) Singapore-listed OSV builder (all simple average) Singapore OSV owner CH Offshore Ltd CHO SP Ezion Holdings EZI SP Ezra Holdings EZRA SP Kreuz Holdings Ltd KRZ SP Mermaid Maritime MMT SP Swiber Holdings SWIB SP Singapore OSV owner (weighted avg - excl NR) Singapore OSV owner (all simple average) Malaysia offshore Alam Maritim Resources Bhd AMRB MK Bumi Armada BAB MK Kencana Petroleum KEPB MK Malaysia Marine & Heavy Eng MMHE MK Perdana Petroleum PETR MK Perisai Petroleum PPT MK SapuraCrest Petroleum SCRES MK Malaysia offshore (weighted avg - excl NR) Malaysia offshore (all simple average) Indonesia offshore Wintermar Offshore Marine Indonesia offshore average

0.64 0.56 0.36 0.18 0.10 1.54

0.72 na na na 0.08 2.02

215 344 98 281 219 1,449

9.2 7.0 6.2 7.4 na 7.9 9.7 7.5

7.8 5.3 5.4 7.4 na 8.7 9.7 6.9

18.5% 18.9% 13.0% 11.9% na -23.6% -12.5% 7.7%

0.71 0.68 0.84 2.01 0.64 2.21 1.45 1.18

8.0% 9.8% 17.4% 25.7% -5.0% 28.7% 15.3% 14.1%

2.8% na 1.4% 0.7% 0.0% 5.0% 4.2% 2.0%

NR Outperform Outperform NR Outperform Outperform

0.43 0.84 1.05 0.28 0.28 0.60

na 1.12 1.21 na 0.44 0.79

239 570 819 124 175 292

7.7 8.0 15.6 3.7 28.9 6.2 10.6 11.7

6.6 4.7 9.2 3.3 10.3 6.0 6.8 6.7

8.4% 47.5% 40.3% 13.8% na 15.3% 53.6% 25.1%

0.90 1.31 0.89 0.83 0.43 0.71 0.85 0.85

13.1% 18.7% 5.7% 22.1% 1.5% 11.2% 8.1% 12.0%

5.6% 0.1% 2.3% na 0.0% 0.0% 1.1% 1.6%

NR Outperform Outperform Underperform Trading Buy Outperform Outperform

0.68 4.00 3.30 4.88 0.60 0.92 5.07

na 4.80 3.55 4.50 0.85 1.50 5.14

174 3,814 2,141 2,542 96 254 2,107

8.8 18.7 18.9 20.5 8.4 8.4 18.6 18.4 15.6

7.6 15.3 17.2 19.1 7.0 7.9 17.2 16.2 14.0

137.2% 46.3% 18.8% 6.9% na 68.1% 12.7% 26.9% 30.6%

0.92 4.88 7.89 3.30 0.60 2.03 6.30 4.46 4.17

11.6% 20.7% 43.1% 15.8% 7.4% 25.6% 34.7% 22.6% 24.5%

1.0% 0.6% 0.9% 1.5% 0.0% 0.0% 2.0% 1.1% 0.8%

WINS IJ

Outperform

450.0

590.0

173

9.5 9.5

7.6 7.6

23.3% 23.3%

1.18 1.18

13.3% 13.3%

0.0% 0.0%

International OSV owner Bourbon SA GBB FP Gulfmark Offshore Inc GLF US Miclyn Express Offshore Ltd MIO AU Farstad Shipping ASA FAR NO Tidewater Inc TDW US International OSV owner (all simple average) Average (All ex NR co) Average (All simple)

NR NR NR NR NR

19.20 40.88 1.95 169.0 50.06

na na na na na

1,684 1,097 545 1,130 2,561

12.4 15.8 8.1 10.7 13.9 12.2 12.1 11.7

7.9 8.8 7.3 8.1 9.4 8.3 11.5 9.4

368.8% 55.5% 12.7% 19.4% 62.6% 103.8% 5.8% 38.2%

0.92 0.99 1.34 0.92 0.97 1.03 2.32 1.84

6.5% 6.2% 19.3% 8.3% 7.5% 9.6% 19.8% 15.9%

4.7% 0.0% 3.3% 3.0% 2.0% 2.6% 3.3% 2.0%

SOURCES: CIMB, COMPANY REPORTS, BLOOMBERG

Otto Marine
May 10, 2012

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Otto Marine
May 10, 2012

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Recommendation Framework #1 *

Stock
OUTPERFORM: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a benchmark's total return by 5% or more over the next 3 months. relevant relevant relevant relevant relevant

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is 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)

Otto Marine
May 10, 2012

Recommendation Framework #2 **

Stock
OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months. NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months. UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months. TRADING BUY: Expected positive total returns of 15% or more over the next 3 months. TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

Sector
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% 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: