16 October 2014 Asia Pacific/Singapore Equity Research Capital Goods

Singapore Offshore and Marine Sector Research Analysts Gerald Wong, CFA 65 6212 3037 [email protected] Shih Haur Hwang 65 6212 3024 [email protected]

SECTOR REVIEW

Catching a falling knife? Figure 1: Potential up/downside under different scenarios 80% 60% 40% 20%

0% -20% -40% -60% -80% Cosco Corp P/B vs 2011 low

Vard P/B vs 08/09 low

Yangzijiang

Sembcorp Marine

Keppel

P/E vs historical average in weak oil price

Sembcorp Industries

Ezion

P/E vs historical average in bear case

Source: Bloomberg, Credit Suisse research. NB Vard 08/09 P/B and Ezion P/E sensitivity N.A.

■ Brent at tipping point. The Credit Suisse Global Energy Team has further lowered its 2015 Brent forecast by 6% to US$91.50 and 1Q15 forecast to US$87, the lowest quarter average since 2010. Overall, we expect a deeper near-term trough and project a modestly lower path of recovery in 2015 as North American production growth overwhelms weak consumption. As oil markets struggle to find a floor, we consider outcomes under various scenarios given its high correlation with offshore equipment demand. ■ Stress-testing the sector. In a weak oil price scenario where new orders in 2015 are 25% below historical average, there could be 7-29% downside to 2016E earnings for stocks in the sector. However, with the exception of Cosco Corp, all stocks would still be trading below their historical averages on 2016 P/E. In a bear case scenario where 2015 orders fall to 2009 lows, there could be at least 13-60% downside to 2016E earnings. Sembcorp Industries and Yangzijiang would be trading at the most significant discount to the historical average in this scenario. ■ Trough valuation analysis. We further compare the P/B valuation with their 2008 and 2011 troughs. On this measure, Cosco Corp, Yangzijiang, Vard and Sembcorp Marine are now trading below or close to their 2011 troughs, while Ezion has the most significant downside potential to its 2008 and 2011 troughs. With the exception of Cosco Corp, we do not expect any writedowns from order cancellations due to its exposure to Sevan Drilling. DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do

business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS

BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

16 October 2014

Focus tables and charts Figure 2: Sector valuation table Rating Cosco Corp

U

Current price 0.62

Target price 0.60

% up / Mkt Cap downside (US$ mn) -2.4 1,083

P/E (x) (14E) 50.7

P/E (x) (15E) 27.5

P/E (x) (16E) 18.4

P/B (x) (14E) 1.0

ROE (%) 2.0

Div yld (%) 1.6

Ezion

U

1.55

1.50

-3.2

1,925

9.1

6.6

6.0

1.7

17.5

0.1

Keppel Corp

O

9.91

13.10

32.2

14,164

11.3

9.4

8.9

1.5

13.5

4.4

Sembcorp Marine

N

3.67

3.90

6.3

6,032

14.0

11.8

10.1

2.6

18.5

3.8

Sembcorp Industries

N

4.97

5.40

8.7

6,987

11.4

10.2

9.1

1.6

13.7

3.4

Vard

O

0.70

1.00

43.9

645

9.8

5.9

5.4

1.0

10.4

4.1

Yangzijiang

O

1.12

1.50

34.5

3,365

6.0

6.0

5.9

1.0

16.8

4.5

Source: Company data, Credit Suisse estimates

Figure 3: P/E valuation under different scenarios Price Historical

Base case

Weak oil price environment

Delta of 2016 vs historical P/E

Bear case

Delta of 2016 vs historical P/E

(S$)

P/E

2014

2015

2016

2014

2015

2016

2014

2015

2016

Keppel

9.91

13.0

11.3

9.4

9.2

12.0

10.7

11.0

18%

12.0

11.3

12.7

2%

Sembcorp Marine

3.67

15.6

13.7

11.9

10.0

13.9

13.3

11.8

33%

13.9

14.5

14.0

12%

Sembcorp Industries

4.97

12.7

11.3

10.2

9.1

11.3

10.7

9.8

30%

11.3

11.1

10.5

21%

VARD

0.70

7.8

10.0

6.0

5.5

10.0

6.7

7.7

1%

10.0

6.7

9.8

-20%

Yangzijiang

1.12

9.8

6.0

5.9

5.9

6.0

6.5

6.8

46%

6.0

6.5

8.2

20%

Cosco Corp

0.62

18.0

48.8

27.4

18.9

50.7

33.7

25.5

-29%

50.7

36.4

47.7

-62%

Source: Company data, Credit Suisse estimates

Figure 4: Stocks' P/B relative to 2008 and 2011 lows Current Price (S$) 9.91

1.72

2008 P/B trough 1.24

Sembcorp Marine

3.67

1.32

2.36

2.61

2.07

-21%

2.55

-2%

Sembcorp Industries

4.97

2.97

1.45

1.59

1.22

-23%

1.37

-14%

Vard

0.70

0.66

0.89

0.99

N/A

N/A

1.39

40%

Cosco Corp

0.62

0.58

1.01

1.03

1.41

37%

1.63

58%

Yangzijiang

1.12

0.99

1.02

1.12

1.24

11%

1.29

15%

Ezion

1.55

0.82

1.80

2.23

0.96

-57%

1.51

-32%

Keppel

BVPS Forward P/B 2Q14 (S$) 5.49 1.59

P/B

Up/downside to 08 trough -28%

2011 P/B trough 1.58

Up/downside to 2011 trough -8%

Source: Company data, Credit Suisse estimates

Figure 5: Keppel—historical P/B

Figure 6: Ezion—historical P/B 5.0

7.0

4.5

6.0

4.0

5.0

3.5

4.0

3.0 2.5

3.0

current: 2.27x

2.0

2.0 2011 low: 1.58x

1.0 0.0 Dec-95

current: 1.72x

1.5

0.5

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Source: Bloomberg, Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

2011 low: 1.51x

1.0

08/09 low: 1.29x Dec-13

08/09 low: 0.98x

0.0 Jan-08 Jul-08

Jan-09 Jul-09

Jan-10 Jul-10

Jan-11 Jul-11

Jan-12 Jul-12

Jan-13 Jul-13

Jan-14 Jul-14

Source: Bloomberg, Company data, Credit Suisse estimates

2

16 October 2014

Brent at tipping point Oil prices under pressure on supply surge In our central scenario, Brent prices would stay down in a new range centered on $91.50/bbl in 2015, while WTI averages $84.50/bbl next year. In 2016 and 2017 both would grind down toward their long run, real dollar targets of $86/bbl and $80/bbl, respectively. That compares to Brent prices averaging roughly $110/bbl in the last three years. Figure 7: Credit Suisse oil price forecasts In US$/bbl

4Q14

FY14E

1Q15

2Q15

3Q15

4Q15

FY15E

FY16E

FY17E

Long-term

Brent Crude CS Forecast

92.00

103.31

87.00

92.00

95.00

92.00

91.50

90.00

88.00

86.00

Previous Fcst

98.00

104.81

95.00

99.00

99.00

95.00

97.00

93.00

88.00

86.00

Futures

90.49

102.71

91.78

92.68

93.20

93.43

92.77

93.63

93.74

104.99

107.11

106.00

104.67

106.19

105.52

105.49

103.31

CS Forecast

85.00

95.97

77.00

85.00

90.00

86.00

84.50

82.00

81.00

80.00

Previous Fcst

91.00

97.47

85.00

92.00

92.00

87.00

89.00

85.00

81.00

80.00

Futures

84.68

95.41

83.85

83.47

83.29

83.30

83.48

83.29

83.45

BBG Consensus*

97.73

99.35

101.00

98.76

100.96

98.91

99.28

97.03

BBG Consensus* WTI

Source: Company data, Credit Suisse estimates

The real problem, in our view, is supply. While oil demand growth is tracking close enough to expectations, North American production growth is overwhelming that demand. NonOpec supply growth has been exceeding global demand growth by as much as 1 million barrels per day since 2Q14. Figure 8: Growth (YoY) of non-opec v. demand (kb/d)

Figure 9: In 2012, US crude oil and NGL supplies began to grow by >1 Mb/day (kb/d)

Source: Credit Suisse Research, International Energy Agency, Joint

Source: Credit Suisse Research, International Energy Agency, Joint

Oil Data Initiative and national data sources

Oil Data Initiative and national data sources

Further downward revision in forecasts In “Brent at a Tipping Point – Part II” published on 15 October 2014, Credit Suisse deepened the near-term trough and projected a modestly lower path of recovery for 2015 for both Brent and WTI benchmarks. We fear that Saudi Arabia is cutting back its exports too late, which means that in the seasonally vulnerable first quarter of 2015 another correction would follow. Our central scenario of global oil supply and demand developments through year-end now tracks closer to the ‘bearish’ scenario for the “Call on Saudi + Inventories” that we had painted a month ago. New data on demand in the developed markets of the OECD show less oil consumption in Japan and Europe. Conversely, on the supply side, upside

Singapore Offshore and Marine Sector

3

16 October 2014

revisions to August and September estimates for flows from Libya and Iraq added to what is now apparently significantly more room to build inventory from August through December. Worse, possibly, macro-economic indicators suggest that there is further downside risk outside the US (read, China and Europe). Furthermore, Saudi Arabia appears to have been in no hurry to take any of its oil off the market. If indeed the "central banker of oil" remains in the business of stabilising global oil markets, as we continue to believe is the case, then at the very least the Kingdom has been late in reacting to what has been a very clear and profound bearish turn in fundamentals – that is several months old by now. That bearish turn in fundamentals came in the second quarter. Inventories have built relentlessly since. And the global benchmark's futures curve flipped into a contango in July. Moreover, that contango deepened in August and continues to extend. Figure 10: The Call on Saudi + Inventories is already tracking too close for comfort to our previous bear-case. A gap has opened up between the call and production (kb/day)

Source: Credit Suisse estimates

For a more detailed outlook on oil prices, please refer to reports "Brent at tipping point" published on 30 September 2014 and "Brent at a Tipping Point – Part II" published on 15 October 2014.

Oil prices have a strong correlation with share price performance Stocks in the Singapore offshore and marine sector have a strong historical correlation with oil prices. Since 2004, Sembcorp Marine’s share price has a correlation with oil prices with a factor of 0.82, while Keppel’s share price has a correlation with oil prices with a factor of 0.46.

Singapore Offshore and Marine Sector

4

16 October 2014

Figure 12: KEP share price correlation with oil price 18.00

160

6.00

140

16.00

140

5.00

120

14.00

120

12.00

100

10.00

80

8.00

60

6.00

40 20

4.00

100

KEP Share Price

160

Oil Price

SMM Share Price

7.00

3.00

80

2.00

60

1.00

40

4.00

0.00 01/01/2004

20

2.00 01/01/2004

01/01/2006

01/01/2008

01/01/2010 SMM

01/01/2012

01/01/2014

0 01/01/2006

01/01/2008

01/01/2010 KEP

Oil

Source: Bloomberg, Credit Suisse estimates

Oil Price

Figure 11: SMM share price correlation with oil price

01/01/2012

01/01/2014

Oil

Source: Bloomberg, Credit Suisse estimates

Offshore equipment demand has correlated well with oil prices on a secular basis Rig demand in the past has correlated well with oil prices on a secular trend, though there could be short-term variance on the back of utilisation and day rates. We believe that simply relying on the oil price as a predictor of rig demand can overstate its importance in the near term. For instance, a 50% decline in WTI oil prices over 1997-99 had no impact on robust rig demand during that period. Conversely, rig building orders picked up significantly only in 2005 after a decoupling from the spike in oil prices for more than three years. Figure 13: Rig orders generally correlate well with oil

Figure 14: …but relying on oil prices as a predictor can

prices…

overstate its importance in the near term (US$/barrel)

300

200

20

180

18

100

160

16

80

140

14

120

12

100

10

80

8

60

6

40

4

20

2

120

250 CS forecasts Brent at US$91.50 in 2015

200 150 100

60 40

New Rig Orders (LHS)

2011-14YTD

2006-10

2001-05

1996-00

1991-95

1986-90

0

1981-85

0

1976-80

20

1970-75

50

0 0 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Rig Orders - RHS

WTI Oil - LHS

AVG Real Crude Oil Price (RHS)

Source: Bloomberg, ODS-Petrodata, Credit Suisse estimates

Source: Bloomberg, ODS-Petrodata, Credit Suisse estimates

Rig utilisation as key lead indicator has been trending down Although energy prices and global IP can influence rig demand, we believe a more complex set of factors including national agendas, fiscal policies, regulatory environment, major discoveries, the opening of new prospecting tracts and rig operators’ economics, are equally important in determining newbuild orders. The combined effect of these often opposing factors can be observed in rig utilisation rates, which we believe are the key lead indicator for rig demand. Our analysis of historical data suggests that rig building activity picks up significantly when global offshore utilisation rates approach 95%, a consistent result across the different rig categories.

Singapore Offshore and Marine Sector

5

16 October 2014

Figure 15: Global offshore rig utilisation vs new orders 100.00

20

90.00

15

80.00

10

70.00

5

60.00 Jan-85

0

Jan-88

Jan-91

Jan-94

Jan-97

Jan-00

Rig Utilization - All (LHS)

Jan-03

Jan-06

Jan-09

Jan-12

Rig Order Units (RHS)

Source: ODS-Petrodata, Credit Suisse estimates

Utilisation of the global semisubmersible fleet has fallen to 82% in September 2014 from a peak of 89% in September 2013, while utilisation of the global jackup fleet has fallen to 85% from a peak of 89% in March 2014. Figure 16: Jackup utilisation and dayrate 100

(%)

Figure 17: Semisub utilisation and dayrate ($)

95 90

140,000

95

400,000

90

350,000

100,000

80 75 70 65

85

75

60,000

70

250,000 200,000 150,000

65

100,000

60 20,000

55 50 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Avg Day Rate

-

55

50,000

50 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

-

Utilization

Source: ODS-Petrodata

450,000

300,000

80

80,000

40,000

60

($)

100

120,000

85

(%)

160,000

Avg Day Rate

Utilization

Source: ODS-Petrodata

Our jackup demand supply model suggests utilisation to recover in 2017E Based on our jackup demand and supply model, we expect utilisation of the global jackup fleet to continue to decline through to 2016E, before recovering in 2017E. The key assumptions in the model are as follow: ■

Jackup additions based on scheduled rig deliveries, with no delivery delays and no further new orders

■

Jackup removals based on attrition schedule for rigs reaching 40 years of age

■

Demand growth of 4% per annum

Singapore Offshore and Marine Sector

6

16 October 2014

Figure 18: Jackup demand/supply model Year

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013 2014E 2015E 2016E 2017E

Supply Fleet - BOY

389

386

388

398

413

439

456

478

482

481

514

540

586

610

Jackup Additions

4

9

12

16

30

24

23

17

14

41

38

66

51

10

Jackup Removals

7

7

2

1

4

7

1

13

15

8

12

20

27

21

Fleet- EOY

386

388

398

413

439

456

478

482

481

514

540

586

610

599

Fleet - Average

388

387

393

406

426

448

467

480

482

498

527

563

598

605

Contracted

341

353

361

369

390

341

338

356

388

428

445

463

481

500

Demand Growth

2%

4%

2%

2%

6%

-13%

-1%

5%

9%

10%

4%

4%

4%

4%

88%

91%

92%

91%

91%

76%

72%

74%

81%

86%

84%

82%

80%

83%

Demand

Utilisation rate

Source: ODS-Petrodata, Credit Suisse estimates

As a reflection of concerns about lower utilisation of the fleet, there were only five rig orders placed in 3Q14, the lowest level since 2011. We also note that there has been no semisub order since 2Q14, and no drillship order in 3Q14. Figure 19: Quarterly rig orders (rigs) 32

28

27

27

27 24

2 18

2 11

5

5

2 -3

15 12

10

1Q11

2Q11

20 1

18

14

12 7

2

2

22 17

31 1

3Q11

12 2

12 4

2 9

8

5

2

3

4

4Q11

1Q12

2Q12

Drillship

2 12

11

5

21

3Q12

Jackup

3 4Q12

15 14

8 7

19

1 1Q13

Semisubmersible

2 2Q13

18

26 16

5 6 3Q13

4

4

4Q13

1Q14

2 2Q14

5 3Q14

Total

Source: ODS-Petrodata, Credit Suisse estimates

Singapore Offshore and Marine Sector

7

16 October 2014

Stress-testing the sector Scenario analysis As oil markets struggle to find a floor, we consider outcomes under various scenarios. While Yangzijiang has limited exposure to the offshore market with only one jackup under construction, we perform the same analysis in the event that a weak economic recovery lead to concerns about commercial shipbuilding orders. ■

Base case: Our current forecasts are in line with mid-cycle level of orders

■

Weak oil price environment: 2014 orders based on year-to-date contract wins. 2015 and 2016 orders based on 75% of existing forecasts

■

Bear case: 2014 orders based on year-to-date contract wins. 2015 based on 2009 orders. 2016 orders based on 50% of existing forecasts

Figure 20: Order expectations under different economic scenarios Base

Weak Oil Price Environment

Bear Case

Currency

YTD

2014

2015

2016

2014

2015

2016

2014

2015

2016

Keppel

S$ bn

3.6

7.00

7.00

7.00

3.60

5.25

5.25

3.60

1.70

3.50

Sembcorp Marine

S$ bn

3.7

4.50

4.00

4.00

3.66

3.00

3.00

3.66

1.20

2.00

VARD

NOK bn

8.8

13.00

12.00

12.00

8.80

9.00

9.00

8.80

4.50

6.00

Yangzijiang

US$ bn

1.42

2.00

2.00

2.50

1.35

1.50

1.88

1.35

0.30

1.25

Cosco

US$ bn

1.58

2.50

2.50

2.50

1.58

1.88

1.88

1.58

0.10

1.25

Source: Company data, Credit Suisse estimates

Scenario 1: Weak oil price environment In a weak oil price environment, Sembcorp Industries and Yangzijiang would face the most limited downside to 2015-16 EPS. Figure 21: EPS estimates under a weak oil price environment Base

Weak Oil Price Environment

Impact to EPS

Currency

2014

2015

2016

2014

2015

2016

2014

2015

2016

Keppel

S$

0.88

1.06

1.08

0.83

0.93

0.90

-5%

-12%

-16%

Sembcorp Marine

S$

0.27

0.31

0.37

0.26

0.28

0.31

-1%

-11%

-15%

Sembcorp Industries

S$

0.44

0.49

0.55

0.44

0.46

0.51

-1%

-5%

-7%

VARD

NOK

0.36

0.60

0.66

0.36

0.54

0.47

0%

-10%

-29%

Yangzijiang

RMB

0.89

0.90

0.90

0.89

0.83

0.79

0%

-8%

-12%

Cosco Corp

S$

0.01

0.02

0.03

0.01

0.02

0.02

-4%

-19%

-26%

Source: Company data, Credit Suisse estimates

Scenario 2: 2009 bear case In our bear case scenario, Sembcorp Industries would face the most limited downside to 2015-16 EPS due to the diversified nature of its business. Figure 22: EPS estimates in a bear case scenario Base

Bear Case

Impact to EPS

Currency

2014

2015

2016

2014

2015

2016

2014

2015

2016

Keppel

S$

0.88

1.06

1.08

0.83

0.88

0.78

-5%

-17%

-28%

Sembcorp Marine

S$

0.27

0.31

0.37

0.26

0.25

0.26

-1%

-18%

-28%

Sembcorp Industries

S$

0.44

0.49

0.55

0.44

0.45

0.47

-1%

-8%

-13%

VARD

NOK

0.36

0.60

0.66

0.36

0.54

0.37

0%

-10%

-44%

Yangzijiang

RMB

0.89

0.90

0.90

0.89

0.83

0.65

0%

-8%

-28%

Cosco Corp

S$

0.01

0.02

0.03

0.01

0.02

0.01

-4%

-25%

-60%

Source: Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

8

16 October 2014

P/E valuation under different scenarios In both scenarios of a weak oil price environment and bear case, Sembcorp Industries, Yangzijiang, Sembcorp Marine and Keppel's 2016 P/E are below their historical averages. Figure 23: P/E valuation under different scenarios Price Historical

Base case

Weak oil price environment

Delta of 2016 vs historical P/E

Bear case

Delta of 2016 vs historical P/E

(S$)

P/E

2014

2015

2016

2014

2015

2016

2014

2015

2016

Keppel

9.91

13.0

11.3

9.4

9.2

12.0

10.7

11.0

18%

12.0

11.3

12.7

2%

Sembcorp Marine

3.67

15.6

13.7

11.9

10.0

13.9

13.3

11.8

33%

13.9

14.5

14.0

12%

Sembcorp Industries

4.97

12.7

11.3

10.2

9.1

11.3

10.7

9.8

30%

11.3

11.1

10.5

21%

VARD

0.70

7.8

10.0

6.0

5.5

10.0

6.7

7.7

1%

10.0

6.7

9.8

-20%

Yangzijiang

1.12

9.8

6.0

5.9

5.9

6.0

6.5

6.8

46%

6.0

6.5

8.2

20%

Cosco Corp

0.62

18.0

48.8

27.4

18.9

50.7

33.7

25.5

-29%

50.7

36.4

47.7

-62%

Source: Company data, Credit Suisse estimates

Figure 24: Keppel—historical P/E

Figure 25: Sembcorp Marine—historical P/E 30.00

30.00

25.00

25.00

20.00

20.00

15.00

15.00

10.00

10.00

5.00

5.00

P/E

Average

+ 1 SD

Jan-14

Jan-12

Jan-10

Jan-08

Jan-06

Jan-04

Jan-02

Jan-00

Jan-98

Jan-96

Jan-94

Jan-92

Jan-90

0.00

0.00 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14

P/E

- 1 SD

Average

+ 1 SD

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

Source: Bloomberg, Company data, Credit Suisse estimates

Figure 26: Sembcorp Industries—historical P/E

Figure 27: Ezion—historical P/E

40.00

20.00

35.00

18.00 16.00

30.00

14.00

25.00

12.00

20.00

10.00

15.00

8.00 6.00

10.00

4.00

5.00 0.00 Oct-98

2.00

Oct-00

Oct-02 P/E

Oct-04

Oct-06 Average

Oct-08 + 1 SD

Oct-10

Oct-12

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

0.00 Aug-09

May-10

Feb-11 P/E

Nov-11 Average

Aug-12 + 1 SD

May-13

Feb-14

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

9

16 October 2014

Figure 28: COSCO—historical P/E

Figure 29: Yangzijiang—historical P/E

45.00

40.00

40.00

35.00

35.00

30.00

30.00

25.00

25.00

20.00

20.00

15.00

15.00

10.00

10.00

5.00

5.00 0.00 Jul-03

Jul-05

Jul-07 P/E

Jul-09

Jul-11

Average

+ 1 SD

0.00 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

Jul-13

P/E

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

Average

+ 1 SD

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

Figure 30: VARD—historical P/E 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Jan-11

May-11

Sep-11

Jan-12

P/E

May-12

Sep-12

Jan-13

Average

May-13

Sep-13

+ 1 SD

Jan-14

May-14

Sep-14

- 1 SD

Source: Bloomberg, Company data, Credit Suisse estimates

P/B trough valuation Given significant earnings uncertainty, we further compare the P/B valuation with their 2008 and 2011 troughs. On this measure, Cosco Corp, Yangzijiang, Vard and Sembcorp Marine are now trading below or close to their 2011 troughs, while Ezion has the most significant downside potential to its 2008 and 2011 troughs. We do not expect any writedowns from order cancellations with the exception of Cosco Corp due to its exposure to Sevan Drilling. Figure 31: Stocks P/B relative to 2008 and 2011 lows

1.72

2008 P/B trough 1.24

Sembcorp Marine

3.67

1.32

2.36

2.61

2.07

-21%

2.55

-2%

Sembcorp Industries

4.97

2.97

1.45

1.59

1.22

-23%

1.37

-14%

Vard

0.70

0.66

0.89

0.99

N/A

N/A

1.39

40%

Cosco Corp

0.62

0.58

1.01

1.03

1.41

37%

1.63

58%

Yangzijiang

1.12

0.99

1.02

1.12

1.24

11%

1.29

15%

Ezion

1.55

0.82

1.80

2.23

0.96

-57%

1.51

-32%

Keppel

Current Price (S$) 9.91

BVPS Forward P/B 2Q14 (S$) 5.49 1.59

P/B

Up/downside to 08 trough -28%

2011 P/B trough 1.58

Up/downside to 2011 trough -8%

Source: Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

10

16 October 2014

Figure 32: Keppel—historical P/B

Figure 33: Sembcorp Marine—historical P/B

7.0

7.00

6.0

6.00

5.0

5.00

4.0

4.00

3.0

3.00

2.0

2.00

0.0 Dec-95

current: 1.72x

2011 low: 1.58x

1.0

08/09 low: 1.29x Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Dec-13

2011 low: 2.55x current: 2.61x 08/09 low: 1.73x

1.00 0.00 Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Dec-13

Source: Bloomberg, Company data, Credit Suisse estimates

Source: Bloomberg, Company data, Credit Suisse estimates

Figure 34: Sembcorp Industries—historical P/B

Figure 35: Ezion—historical P/B 5.0

3.5

4.5 4.0 3.5

2.5

3.0 2.5

1.5 2011 low: 1.37x

current: 1.59x

1.5

08/09 low: 1.13x 0.5 Oct-98

Oct-00

Oct-02

Oct-04

Oct-06

Oct-08

current: 2.27x

2.0

2011 low: 1.51x

1.0

Oct-10

0.5

Oct-12

08/09 low: 0.98x

0.0 Jan-08 Jul-08

Jan-09 Jul-09

Jan-10 Jul-10

Jan-11 Jul-11

Jan-12 Jul-12

Jan-13 Jul-13

Jan-14 Jul-14

Source: Bloomberg, Company data, Credit Suisse estimates

Source: Bloomberg, Company data, Credit Suisse estimates

Figure 36: Yangzijiang—historical P/B

Figure 37: COSCO—historical P/B

12.00

20.00

10.00

16.00

8.00 12.00 6.00 8.00

4.00 4.00

2.00

current: 1.02x 08/09 low: 0.98x 0.00 Apr-07

Apr-08

Apr-09

Apr-10

2011 low: 1.29x Apr-11

Apr-12

08/09 low: 1.41x

Current: 1.11x Apr-13

Apr-14

Source: Bloomberg, Company data, Credit Suisse estimates

0.00 Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

2011 low: 1.63x Dec-09

Dec-11

Dec-13

Source: Bloomberg, Company data, Credit Suisse estimates

Figure 38: VARD—historical P/B 3.00

2.50

2.00

1.50 2011 low: 1.39x 1.00 current: 0.99x 0.50 Nov-10Feb-11May-11Aug-11Nov-11Feb-12May-12Aug-12Nov-12Feb-13May-13Aug-13Nov-13Feb-14May-14Aug-14

Source: Bloomberg, Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

11

16 October 2014

Cancellation risks remain low Keppel has greater exposure to new entrants in its order book, including Fecon, Falcon Energy, TS Offshore and Clearwater Capital, which make up about 13% of its order book. Sembcorp Marine's order book is made up almost entirely of established drillers with the exception of Marco Polo Marine (2%). However, we expect limited order cancellation risks for both companies due to strong demand in the secondary market. In June 2014, Clearwater Capital sold one of its jackups due for delivery in 4Q15 to Gulf Drilling International at a premium to its purchase price in October 2013 of US$220 mn. Our channel checks with rig owners such as Falcon Energy further suggest that secondary transaction prices for units from Keppel and Sembcorp Marine are still higher than the newbuild price, even though they have declined from the peak in early 2014. Figure 39: Sembcorp Marine—newbuild orderbook Hercules Marco Polo 2% 2% Helix North Atlantic 3% Drilling 4%

BOT Lease Co. 2%

Prosafe 5% Perisai 5% Sete Brasil 45%

Det Norkse 6%

Clearwater PV Drilling 2% Star 2% Falcon Drilling Energy 2% Caspian Drilling 2% 2% UMW Oil & Gas 3% Pemex Gulf Drilling 3% International 3% KazMunayGas 2%

Parden 2%

Perforadora Central 2%

Sete Brasil 40%

TS Offshore 4%

Oro Negro 8% Transocean 8%

Figure 40: Keppel—newbuild orderbook

Fecon 5% Noble 10%

Grupo R Maersk 8% Drilling 9% Transocean 9%

Source: Company data, Credit Suisse estimates

Source: Company data, Credit Suisse estimates

Cosco Corp most exposed to cancellation risks Based on our analysis of the offshore newbuild order book, we believe Cosco Corp is most exposed to order cancellation risk due to its exposure to Sevan Drilling, Dalian Deepwater Development and ATP Oil and Gas. Offshore now contributes close to 80% of its revenue, and net gearing has increased to 1.9x as of 2Q14 due to backend-loaded payment terms for newbuild offshore projects. In October 2013, Dalian Deepwater Development terminated its contract to build a drillship due to delays in the delivery of the vessel. The shipowner is making a claim for its first instalment paid, together with other advances, damages and indemnity for future losses. Notwithstanding the arbitration proceedings, the first instalment of US$110 mn and interest of US$8.1 mn was refunded to the shipowner in January 2014. The drillship is now held on the balance sheet of Cosco based on an estimated fair value of US$634 mn, which could lead to potential writedowns if it were sold at a lower value. Upstream has also reported that Sevan Drilling is considering not taking delivery of its semisubmersible rig under construction at Cosco Shipyard.

Singapore Offshore and Marine Sector

12

16 October 2014

Figure 41: Offshore & Marine Sector valuation comps Current

Target

Mkt Cap

Ave 3M

Rating

price

price

(US$m)

T/O (mn)

14E

15E

16E

14E

15E

16E

14E

15E

16E

14E

15E

16E

Div Yield (%) 14E

Keppel Corp Sembcorp Marine Sembcorp Industries Singapore Rigbuilders

O N N

9.91 3.67 4.97

13.10 3.90 5.40

14,168 6,033 6,989

24.2 10.2 8.1

11.3 14.0 11.4 12.2

9.4 11.8 10.2 10.4

9.2 10.1 9.1 9.5

1.5 2.6 1.6 1.9

1.4 2.3 1.4 1.7

1.3 2.1 1.3 1.5

13.5 18.5 13.7 15.2

14.9 19.8 13.9 16.2

14.1 20.5 14.0 16.2

9.0 7.1 5.8 7.3

6.7 5.8 4.9 5.8

6.4 4.8 4.1 5.1

4.4 3.8 3.4 3.9

Vard Holdings Ezion Holdings ASL Marine Dyna-Mac Ezra Holdings Mermaid Maritime Nam Cheong PACC Offshore Services Pacific Radiance Swiber Holdings Singapore Mid-Cap

O U NR NR NR NR NR NR NR NR

0.70 1.55 0.60 0.38 0.79 0.30 0.39 0.71 1.09 0.39

1.00 1.50 n.a n.a n.a n.a n.a n.a n.a n.a

645 1,925 199 306 604 333 579 1,009 622 188

3.5 10.3 n.a n.a 2.5 n.a n.a n.a n.a n.a

9.8 9.1 10.6 12.7 10.2 7.0 8.6 11.6 7.9 n.m 9.8

5.9 6.6 10.9 9.7 7.1 6.0 4.8 6.1 6.9 20.4 9.0

5.4 6.0 10.9 n.a n.a n.a 6.1 5.2 6.6 n.m. 7.2

1.0 1.7 0.6 1.9 0.5 0.6 1.8 0.8 1.4 0.4 1.0

0.9 1.4 0.6 1.8 0.5 0.5 1.0 0.7 1.2 0.4 0.8

0.8 1.1 0.6 n.a n.a n.a 1.3 0.6 1.1 0.4 0.8

10.4 17.5 6.7 15.4 5.2 8.8 25.4 7.4 18.9 n.m 12.5

15.5 20.6 5.4 19.2 6.9 9.0 24.8 11.6 18.6 2.1 12.2

15.1 18.8 5.2 n.a n.a n.a 22.7 11.3 17.4 0.8 11.5

4.3 9.8 n.a n.a 9.9 6.1 8.4 11.9 10.1 18.9 10.9

3.2 6.6 n.a n.a 7.6 6.7 5.5 7.2 8.6 16.5 8.7

2.7 5.6 n.a n.a n.a n.a 6.2 6.0 7.5 19.2 9.7

4.1 0.1 1.7 5.3 0.9 8.1 2.6 0.0 6.3 9.8 4.3

Cosco Corp Yangzijiang Guangzhou Shipyard - H Guangzhou Shipyard - A China CSSC China Rongsheng China Shipbuilding Chinese Shipbuilders

U O NR NR NR NR NR

0.62 1.12 13.73 17.14 40.51 1.36 6.66

0.60 1.50 n.a n.a n.a n.a n.a

1,083 3,366 1,048 1,227 9,115 1,540 19,172

0.6 8.3 n.a n.a n.a n.a n.a

50.7 6.0 n.a n.a n.a n.m 27.8 28.1

27.5 6.0 2.3 36.6 n.a n.m 25.9 19.7

18.4 5.9 n.a 31.2 54.8 n.m 23.5 26.8

1.0 1.0 n.a 2.9 3.2 0.6 2.1 1.8

1.0 0.9 n.a 2.7 3.1 0.6 1.9 1.7

1.0 0.8 n.a 2.5 2.9 n.a 1.7 1.8

2.0 16.8 0.7 n.a 1.1 n.m 6.5 5.4

3.6 15.1 53.7 5.9 3.1 n.m 7.2 14.8

5.2 13.7 0.8 7.9 4.9 n.m 7.2 6.6

14.6 6.3 n.a n.a n.a n.a n.a 10.4

13.1 5.7 n.a n.a n.a 64.7 n.a 27.8

10.9 5.2 n.a n.a n.a 97.8 n.a 37.9

1.6 4.5 n.a n.a 0.0 0.0 1.7 1.6

Hyunday Heavy Samsung Heavy Hyundai MIPO Korea Shipbuilders

U N U

113,000 23,450 97,700

141,000 28,000 74,000

8,102 5,108 1,843

37.8 40.8 14.0

n.m 33.4 n.m 22.1

20.1 14.0 n.m 13.8

10.6 13.8 52.9 20.6

0.5 0.9 0.7 0.7

0.5 0.9 0.7 0.7

0.5 0.9 0.7 0.6

n.m 2.8 n.m 4.3

2.5 6.4 n.m 5.6

4.6 6.2 1.3 5.6

n.m 12.2 n.m 8.3

15.9 8.5 n.m 9.4

12.1 8.2 63.1 21.6

6.6 2.1 2.0 2.7

IHI Corp Kawasaki HI Mitsubishi HI Japan Shipbuilders

O NR O

514.0 408.0 633

600.00 n.a 800.00

7,508 6,441 20,054

46.1 59.1 92.5

20.2 15.8 15.0 17.0

16.5 13.3 13.9 14.6

13.7 11.6 12.2 12.5

2.1 1.8 1.3 1.7

1.9 1.6 1.2 1.6

1.7 1.4 1.1 1.4

10.6 11.6 8.7 10.3

11.7 12.8 8.8 11.1

12.6 13.2 9.3 11.7

8.7 5.7 6.5 7.0

7.6 4.9 5.8 6.1

6.9 4.4 5.3 5.5

1.1 1.7 1.5 1.4

O O N

18.86 593.20 1.83

21.50 900.00 2.40

13,588 550 594

28.0 3.2 3.8

8.7 7.5 8.4 8.2

8.0 6.0 8.3 7.5

7.6 5.9 8.3 7.3

1.6 0.6 0.9 1.0

1.4 0.6 0.8 0.9

1.2 0.5 0.8 0.8

17.9 7.9 9.3 11.7

17.1 9.2 9.9 12.1

15.9 8.9 9.3 11.4

7.6 7.3 6.0 7.0

6.8 6.2 5.1 6.1

5.9 5.9 4.8 5.5

3.4 0.6 6.4 3.5

Bumi Armada MMHE UMW Oil & Gas Alam Maritim Dialog Group Perisai Petroleum SapuraKencana Wah Seong Malaysia Oil and Gas

NR U NR NR N NR O NR

1.41 2.41 3.23 1.02 1.57 1.11 3.41 1.56

n.a 3.25 n.a n.a 1.90 n.a 5.60 n.a

2,524 1,177 2,131 288 2,358 404 6,235 369

3.5 0.4 3.9 n.a 4.4 n.a 13.4 0.3

15.0 14.9 25.6 10.9 31.7 31.7 14.2 10.9 18.5

13.7 13.9 16.3 8.6 25.3 9.2 12.3 9.6 13.2

11.8 15.0 14.5 7.0 21.5 6.8 11.1 8.8 11.7

1.6 1.4 2.4 1.1 4.3 1.6 1.8 1.1 1.9

1.5 1.3 2.1 1.0 4.0 1.4 1.6 1.1 1.7

1.3 1.2 1.9 0.9 3.4 1.2 1.4 1.1 1.5

10.6 9.4 8.9 12.2 17.1 4.1 14.0 9.9 11.0

10.6 9.4 11.5 13.2 18.7 13.4 14.9 11.0 13.0

11.2 8.2 16.1 17.3 20.9 15.2 15.2 21.1 15.6

10.7 9.8 18.4 12.1 26.5 20.8 10.7 6.4 13.8

10.7 9.4 12.3 10.5 22.6 10.5 9.3 6.0 11.3

8.8 10.3 11.3 8.3 19.7 8.7 8.6 5.5 10.0

1.5 2.1 0.2 0.8 1.2 0.0 0.8 3.2 1.4

Atwood Oceanics Diamond Offshore Ensco Hercules Noble Ocean Rig Rowan Seadrill Transocean US Offshore Services

N N N N O R O N N

39.18 38.75 38.15 1.65 18.88 12.53 22.12 23.01 29.44

55.00 40.00 55.00 5.00 32.32 n.a 35.00 30.00 30.00

2,521 5,314 8,939 265 4,800 1,650 2,754 10,768 10,663

10.2 17.2 39.3 2.4 32.0 1.3 20.3 30.9 43.7

7.2 14.5 6.7 10.8 6.0 6.9 10.4 7.5 6.4 8.5

5.7 12.2 7.5 4.8 8.2 7.2 6.5 7.9 10.0 7.8

n.a n.a n.a n.a n.a n.a n.a n.a 13.1 13.1

1.0 1.2 0.7 0.3 0.6 0.5 0.5 1.2 0.6 0.7

0.8 1.2 0.7 0.3 0.6 0.5 0.5 1.2 0.6 0.7

n.a n.a n.a n.a n.a n.a n.a n.a 0.6 0.6

13.2 8.2 11.1 2.9 10.4 7.5 5.1 16.7 9.0 9.4

14.8 9.8 9.4 6.1 7.5 6.8 7.7 18.8 6.3 9.7

n.a n.a n.a n.a n.a n.a n.a n.a 5.0 5.0

6.8 7.6 5.9 4.1 4.4 5.6 7.5 9.3 5.4 6.3

5.4 6.6 6.6 3.2 5.1 4.9 5.5 8.1 6.6 5.8

n.a n.a n.a n.a n.a n.a n.a n.a 7.5 7.5

0.5 9.0 7.9 0.0 7.9 4.5 1.4 17.3 9.8 6.5

N U N O NR

21.05 14.70 78.10 56.9 138.50

28.00 18.00 144.00 92.0 n.a

882 8,327 4,204 8320.75 775

11.5 44.9 25.4 45.9 n.a

n.m 20.7 6.3 12.3 9.7 13.1

13.6 10.0 6.3 8.7 7.3 9.6

6.9 6.7 5.7 7.5 5.5 6.7

0.5 1.3 0.5 1.6 2.2 1.0

0.5 1.2 0.5 1.5 1.7 0.9

0.5 1.0 0.5 1.3 1.3 0.8

n.m 6.3 9.5 13.3 29.5 9.7

3.6 11.9 9.1 17.4 26.2 10.5

6.6 15.6 9.5 18.0 26.8 12.4

7.7 7.7 3.4 5.1 8.6 6.0

4.2 5.3 3.2 3.5 6.8 4.0

2.7 3.9 2.5 2.8 5.0 3.0

0.0 1.6 7.2 3.3 0.9 3.0

COSL Aban Offshore Mermaid Marine Asia Offshore Services

Aker Solutions Saipem Subsea 7 Technip Gulf Marine Services European Offshore Services

PE (x)

PB (x)

ROE (%)

EV/EBITDA (x)

Source: Thomson-Reuters, Company data, Credit Suisse estimates

Singapore Offshore and Marine Sector

13

16 October 2014

Companies Mentioned (Price as of 15-Oct-2014) ASL Marine (ASLM.SI, S$0.6) Aban Offshore Ltd (ABAN.BO, Rs593.2) Aker Solutions (AKSOL.OL, Nkr46.4) Alam Maritim (ALMT.KL, RM1.02) Atwood Oceanics, Inc. (ATW.N, $39.18) Bumi Armada Bhd (BUAB.KL, RM1.41) CN Rongsheng (1101.HK, HK$1.36) COSCO Corporation (Singapore) Ltd (COSC.SI, S$0.62, UNDERPERFORM, TP S$0.6) CSICL (601989.SS, Rmb6.66) CSSC Holdings (600150.SS, Rmb40.51) China Oilfield Services Ltd (2883.HK, HK$18.86) Dialog Group Bhd (DIAL.KL, RM1.57) Diamond Offshore Drilling, Inc (DO.N, $38.75) Dyna-Mac Hldg (DMHL.SI, S$0.38) Ensco Plc. (ESV.N, $38.15) Ezion Holdings Ltd (EZHL.SI, S$1.55, UNDERPERFORM, TP S$1.5) Ezra Holdings Ltd (EZRA.SI, S$0.785) Falcon Energy Gr (FEGL.SI, S$0.33) GZ Shipyard (600685.SS, Rmb17.14) GZ Shipyard (0317.HK, HK$13.728) Gulf Marine (GMS.L, 138.5p) Hercules Offshore (HERO.OQ, $1.65) Hyundai Heavy Industries (009540.KS, W113,000) Hyundai Mipo Dockyard (010620.KS, W97,700) IHI (7013.T, ¥514) Kawasaki Heavy Industries, Ltd. (7012.T, ¥408) Keppel Corporation (KPLM.SI, S$9.91, OUTPERFORM, TP S$13.1) Malaysia Marine and Heavy Engineering Holdings Bhd (MHEB.KL, RM2.41) Mermaid Marine Australia (MRM.AX, A$1.88) Mermaid Maritime (MMPC.SI, S$0.3) Mitsubishi Heavy Industries (7011.T, ¥633) Nam Cheong (NMCG.SI, S$0.385) Noble Corporation (NE.N, $18.88) Noble Energy (NBL.N, $54.85) Origin Energy (ORG.AX, A$14.15) POSH (PACC.SI, S$0.705) Pacific Radiance (PACI.SI, S$1.09) Perisai Petroleu (PPTB.KL, RM1.11) Rowan Companies (RDC.N, $22.12) Saipem (SPMI.MI, €14.7) Samsung Heavy Industries (010140.KS, W23,450) SapuraKencana Petroleum Bhd (SKPE.KL, RM3.41) Seadrill (SDRL.N, $23.01) Sembcorp Industries Limited (SCIL.SI, S$4.97, NEUTRAL, TP S$5.4) Sembcorp Marine Ltd. (SCMN.SI, S$3.67, NEUTRAL, TP S$3.9) Sevan Drilling (SEVDR.OL, Nkr0.98) Subsea 7 S.A. (SUBC.OL, Nkr78.1) Swiber (SWBR.SI, S$0.39) Technip (TECF.PA, €56.9) Transocean Inc. (RIG.N, $29.44) UMW Oil & Gas (UMOG.KL, RM3.23) Vard Holdings Ltd (VARD.SI, S$0.7, OUTPERFORM, TP S$1.0) Wah Seong Corporation (WAHE.KL, RM1.56) Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI, S$1.12, OUTPERFORM, TP S$1.5)

Disclosure Appendix Important Global Disclosures I, Gerald Wong, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Singapore Offshore and Marine Sector

14

16 October 2014

3-Year Price and Rating History for COSCO Corporation (Singapore) Ltd (COSC.SI) COSC.SI Date 02-Nov-11 10-Sep-13 30-Apr-14

Closing Price (S$) 1.02 0.74 0.72

Target Price (S$) 0.60 0.80 0.60

Rating U N U

* Asterisk signifies initiation or assumption of coverage.

U N D ERPERFO RM N EU T RA L

3-Year Price and Rating History for Ezion Holdings Ltd (EZHL.SI) EZHL.SI Date 09-Jul-14

Closing Price (S$) 1.67

Target Price (S$) 1.50

Rating U*

* Asterisk signifies initiation or assumption of coverage.

U N D ERPERFO RM

3-Year Price and Rating History for Keppel Corporation (KPLM.SI) KPLM.SI Date 20-Oct-11 13-Apr-12 18-Oct-12 18-Feb-13 18-Jul-13 07-Nov-13 23-Jan-14 25-Jul-14

Closing Price (S$) 8.48 11.07 11.00 11.29 10.80 10.93 10.88 11.03

Target Price (S$) 12.40 12.70 12.80 13.70 12.50 12.90 12.70 13.10

Rating O

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

Singapore Offshore and Marine Sector

15

16 October 2014

3-Year Price and Rating History for Sembcorp Industries Limited (SCIL.SI) SCIL.SI Date 04-Nov-11 27-Feb-12 06-Aug-12 26-Feb-13 10-Apr-13 06-Aug-13 11-Nov-13 26-Feb-14

Closing Price (S$) 4.17 5.12 5.32 5.17 5.01 5.06 5.30 5.42

Target Price (S$) 4.88 5.48 6.08 5.88 5.08 5.18 5.28 5.40

Rating O

N

* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM N EU T RA L

3-Year Price and Rating History for Sembcorp Marine Ltd. (SCMN.SI) SCMN.SI Date 04-Nov-11 24-Feb-12 10-May-12 05-Nov-12 21-Feb-13 24-Feb-14 02-May-14

Closing Price (S$) 4.15 5.23 4.63 4.67 4.71 4.07 4.06

Target Price (S$) 3.98 4.68 4.38 4.28 3.98 4.00 3.90

Rating N

* Asterisk signifies initiation or assumption of coverage. N EU T RA L

3-Year Price and Rating History for Vard Holdings Ltd (VARD.SI) VARD.SI Date 15-Nov-11 14-Feb-12 21-Dec-12 14-Mar-13 14-May-13 30-Jun-13 29-May-14 13-Aug-14 30-Sep-14

Closing Price (S$) 1.12 1.54 1.30 1.28 1.06 1.09 1.06 1.04 0.85

Target Price (S$) 1.30 1.50 1.50 1.10 0.80 1.00 1.00

* Asterisk signifies initiation or assumption of coverage.

Rating N R N U R N O N EU T RA L REST RIC T ED

U N D ERPERFO RM O U T PERFO RM

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3-Year Price and Rating History for Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI) YAZG.SI Date 09-Nov-11 14-Mar-12 10-Aug-12 07-Nov-12 10-Sep-13 01-Oct-13

Closing Price (S$) 0.96 1.35 0.98 0.94 0.98 1.10

Target Price (S$) 1.30 1.60 1.20 1.10 1.30 1.50

Rating O N O

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM N EU T RA L

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total ret urn relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiv eness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is: Global Ratings Distribution

Rating

Versus universe (%)

Of which banking clients (%)

Outperform/Buy* 45% (55% banking clients) Neutral/Hold* 39% (50% banking clients) Underperform/Sell* 13% (43% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

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Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties. Price Target: (12 months) for COSCO Corporation (Singapore) Ltd (COSC.SI) Method: Our target price of S$0.60 for COSCO Corporation (Singapore) Ltd is based on a 1x 2014E P/B (price-to-book). Risk:

Risks that could cause the share price to diverge from our target price of S$0.60 for COSCO Corporation (Singapore) Ltd include: Slowdown in the global economic and trade growth can negatively impact our expectation of continued newbuild order flow. Any delays in deliveries or changes in the company's cost structure in delivering on its newbuild orders can affect our estimates. There is limited visibility on newbuild order pipeline or ship delivery and revenue recognition schedules. COSCO Corps potential divestment of dry bulk shipping business and possible acquisition of higher shareholding in CSG and NACKS can have significant implications on our estimated earnings and value of the company. The occurrence, timing or pricing of these potential transactions is not certain.

Price Target: (12 months) for Keppel Corporation (KPLM.SI) Method: Our S$13.10 target price for Keppel Corporation is based on an SOTP (sum of the parts) methodolgy, valuing: (1) 14x P/E multiple for the O&M business, (2) Credit Suisse's target prices for Keppel Land (S$3.80) and Mobile One S$3.73), (3) the marked-to-market value of other listed entities and (4) the asset value estimates for Keppel Bay and the infrastructure business. Risk:

Risks to our target price of S$13.10 for Keppel Corp include the following: (1) slower than expected recovery in the offshore & marine or property cycles; (2) limited earnings visibility on infrastructure business; and (3) limited disclosure on individual businesses.

Price Target: (12 months) for Sembcorp Industries Limited (SCIL.SI) Method: Our S$5.40 target price for Sembcorp Industries is based on 1) sum-of-the-parts analysis with SembCorp Marine (SCMN.SI) valued at its Credit Suisse target price, 2) Gallant Venture marked to market and 3) the balance of SCI is valued at 10x FY14E earnings. Risk:

The key risks to our target price of S$5.40 for SembCorp Industries (SCI) include: 1) a potential slowdown in rig demand for SMM which constitutes a significant portion of our value of SCI, 2) asset impairment in the financial assets held by SCI, 3) the risk that there is poor take-up in the additional space in Jurong Island by petrochemical companies and not meeting our growth forecasts and 4) limited sucess in its overseas joint venture.

Price Target: (12 months) for Sembcorp Marine Ltd. (SCMN.SI) Method: Our SOTP (sum-of-the-parts)-derived target price for Sembcorp Marine of S$3.90 is based on: (1) 14x O&M 2014E earnings per share (EPS), (2) SMM's stake in Cosco Shipyard and (3) SMM's equity stake in COSCO Corp. Risk:

The risks to SembCorp Marine achieving our target price of S$3.90 are: (1) changes in the oil and rig day rate prices, (2) a rebound in world economic growth, and (3) a shift in capital expenditure of drillers to drill ships, and (4) Changes in value or operating risk pertaining to COSCO Corp.

Price Target: (12 months) for Vard Holdings Ltd (VARD.SI) Method: Our target price for Vard Holdings Ltd of S$1.00 is based on a 2015 P/E of 8.0x, inline with the historical average. Risk:

Risks to our calculated target price of S$1.00 for Vard Holdings Ltd include: (1) faster-than-expected turnaround of operations in Brazil; and (2) stronger-than-expected new orders for offshore support vessels.

Price Target: (12 months) for Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI) Method: Our target price of S$1.50 for Yangzijiang is based on 1.5x 2014 P/B (S$1.01) Risk:

Risks to our target price pf S$1.50 for Yangzijiang are: Slowdown in the global economic and trade growth can negatively impact our expectation of continued newbuild order flow. Any delays or cost overruns by the company in delivering on its newbuild orders can negatively affect our estimates. Yangzijiang's concentrated customer base and significant exposure to the container segment are key demand-side risk factors for the company. The company's inability to secure new yard capacity after the expiry of its lease on the existing yard could negatively impact its earnings capability.

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Price Target: (12 months) for Ezion Holdings Ltd (EZHL.SI) Method: Our target price of S$1.80 for Ezion is derived using a SOTP (sum-of-the-parts) methodology comprising (1) Ezion's existing fleet of liftboats and service rigs using DCF (discounted cash flow) with a WACC (weighted average cost of capital) of 9.80% (2) Offshore logistics vessels: We apply a 7x P/E (price-to-earnings) to its average 2014-16 earnings (3) Associates: We mark-to-market Ezion's equity stakes in Ausgroup, JK Tech and Charisma Energy. Risk:

Key risks to our S$1.80 target price for Ezion Holdings Ltd would include (1) stronger than expected order wins and (2) successful disposal of its Marine supply base business at a premium.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names

The subject company (SCMN.SI, VARD.SI, EZHL.SI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (SCMN.SI, VARD.SI, EZHL.SI) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (VARD.SI) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (SCMN.SI, VARD.SI, EZHL.SI) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (SCMN.SI, VARD.SI, YAZG.SI, EZHL.SI) within the next 3 months.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (COSC.SI, KPLM.SI, SCIL.SI, SCMN.SI, VARD.SI, YAZG.SI, EZHL.SI) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (KPLM.SI, VARD.SI) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch .......................................................................................................... Gerald Wong, CFA ; Shih Haur Hwang For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

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