PACC Offshore Services

Largest Asia-based offshore support vessels operator

Neutral IPO Price

S$1.15

IPO Statistics Issue price Total new share issue - Placement tranche - Public tranche Listing status Closing date (public) Trading date Lead manager

Post IPO Total issued share Market cap NTA PER FY13

IPO Watch 21 April 2014

S$1.15 252.0m 212.0m 40.0m Mainboard 23/April/14 25/April/14 BOA, DBS, OCBC

1829m S$2093m 81 cts 22.9x

Summary: PACC Offshore Services (POSH) is the largest Asia-based international operator of offshore support vessels (OSVs) and one of the top five in the world. POSH’s vessels mainly service offshore oil and gas exploration and production activities. It has a total of 112 vessels and another 15 vessels under delivery. The group seeks to raise S$375m to repay debt and for its expansion plans. It plans to spend US$292m for fleet expansion and will expand into deepwater offshore accommodation and Inspection, Maintenance and Repair (IMR) segment and potential acquisition of IMR vessels. It also plans to expand geographically into Australia, Indonesia, Latin America and the Europe, Middle East and Africa (EMEA) regions. No room for speculation. Historical FY13 PER is higher than its peers at 22.9x Its closest peer Pacific Radiance is trading at historical 11x PER. Stripping out the disposal of assets and forex gains, it would be trading at an even higher historical 48x PER. Going forward, it would mean that POSH will have to grow FY14 net profit by 3x from FY13 to even trade at a forward 10x PER to be more in line with peers. Thus, we think that it has priced in the growth potential for at least the next two years. We think that in the short-term the stock is fully valued but recommend NEUTRAL given the support of the Kuok Group and its bigger size relative to peers. Peer Comparison Code Name POSH EZION EZRA PACIFIC RADIANCE JAYA SWISSCO MARCO POLO SWIBER Average

POSH SP EZI SP EZRA SP PACRA SP JAYA SP SWCH SP MPM SP SWIB SP

Price (Local) 1.15 2.27 1.09 1.07 0.79 0.43 0.38 0.65

MktCap (S$ m) 2093.0 2735.2 1062.0 776.6 605.8 195.7 127.8 398.7 999.4

Actual PER (x) 22.9 12.6 19.6 11.0 10.9 8.1 5.0 5.1 11.9

Y1 PER (x) na 10.2 17.3 9.6 13.3 8.6 7.5 7.4 10.6

PBR (x) 1.4 3.2 0.8 1.7 0.9 1.3 0.8 0.7 1.4

ROE (%) 8.5 28.7 4.3 19.6 8.5 18.1 13.8 15.2 14.6

Yield (%) 0.0 0.0 0.5 1.9 5.7 1.2 3.7 na 1.9

Source: * post-invitation, Bloomberg, NRA Capital estimates

Income Statement (US$m, Year ending Dec) Revenue Cost of Sales Gross Profit Other income Distribution expenses Administrative expenses Other expenses Finance costs Share of JV's results Profit before tax Tax credit/(expense)

Joel Ng (+65) 6236-6886 [email protected] www.nracapital.com

Net profit EPS (cents) Source: IPO Prospectus

FY11 241.0 (185.5) 55.4 17.7 (1.4) (23.8) (6.5) (10.5) (5.1) 26.0 0.3

FY12 243.0 (181.9) 61.1 40.4 (1.2) (29.0) 0.0 (13.2) (3.6) 54.5 (0.9)

FY13 237.3 (164.9) 72.4 50.4 (1.6) (31.7) 0.0 (13.0) 0.9 77.4 (4.0)

26.2 1.4

53.5 2.9

73.4 4.0

PACC Offshore Services Company Background POSH is the largest Asia-based operator of offshore support vessels servicing the O&G industry. It has 112 vessels and 15 vessels under delivery. It has a proven track record of completing 53 floating system transportation and installation contracts since 1991. It has operations in Asia, Africa and Latin America, and counts many large international offshore contractors, such as Saipem, Hyundai Heavy Industries, Technip and SapuraClough Offshore as customers.

Source: IPO Prospectus

Business segments It operates four main business segments in the O&G industry with the main driver coming from its offshore supply vessels segment, contributing half of FY13 revenues.

Source: Company Website

Source: IPO Prospectus

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PACC Offshore Services Offshore Supply Vessels. This business segment supports mid to deepwater operations of rig and oilfield operators (during exploration and construction phases). According to Infield, POSH has the youngest deepwater AHTS and PSV fleet and the youngest midwater AHTS and PSV fleet globally, with an average age of 2.3 and 2.2 years, as at 31 Dec 2013, respectively. The age profile of its fleet is a key competitive advantage as modern vessels are often preferred due to better reliability and emphasis on higher environmental and safety standards. Transportation and Installation. This segment supports marine contractors in construction and maintenance of oilfield infrastructure and pipelines. It provides deepwater towage services for various high-value offshore assets, such as rigs and FPSOs, and offshore construction, transportation and support services in the shallowwater segment. Offshore Accommodation. Operates a young and growing fleet of five offshore accommodation vessels providing a range of solutions that support the global offshore construction, modification & maintenance, and decommissioning activities. It has several vessels under construction to be delivered by 2015, which would increase its accommodation capacity from 879 persons to 3,291 persons. Harbour Services and Emergency Response. POSH owns, operates and manages a fleet of harbour tugs and heavy lift crane barges, which are actively engaged in supporting harbour towage operators and providing heavy lift services to shipyards engaged in the construction, repair and conversion of ships, offshore drilling units, other offshore structures, topside production and processing facilities.

Source: IPO Prospectus

Net income boosted by disposal of fixed assets and forex gains. Other operating income made up between 65% to 75% of profits before tax for FY11 to FY13. A breakdown of other operating income shows that a large amount was mainly from gains on sale of fixed assets and gains from JVs. In FY13, a large share was from forex gains.

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PACC Offshore Services

Source: IPO Prospectus

Group Structure

Source: IPO Prospectus

Group Milestones

Source: Company Website

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PACC Offshore Services Management 

Seow Kang Hoe, Gerald – Chief Executive Officer and Executive Director. He is responsible for leading the development and execution of the group’s overall business strategy. He is also responsible for day-to-day management decisions and implementation of the group’s long-term and short-term plans. Mr. Seow is also currently an executive director of PCL and certain subsidiaries of PCL and KSL. Mr. Seow has more than 40 years of experience in the shipping industry (including 15 years of sea-going experience and more than 20 years of senior management experience). He first began his career at Neptune Orient Lines Limited (“NOL”) in 1971 and he remained with the NOL group until 1996. From 1986 to 1996, he came ashore and served in various senior management positions within the NOL group in Singapore and the United States of America. In 1996, he joined PCL as Senior Manager, Projects & Business Development. Since then, Mr. Seow was instrumental in developing the liner shipping business (under PACC Container Line Pte Ltd commencing in 1997), the offshore marine services business (under the group since 2006) and the shipbuilding business for PCL and KSL. He was a director of these companies upon their formation. Mr. Seow subsequently became a director of PCL in 2001. Mr Seow holds a Certificate of Competency as Master of a Foreign-Going Ship from the Ministry of Transport of New Zealand and a Degree of Master of Science in Shipping, Trade and Finance from The City University of London.

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Yeoh Seng Huat, Geoffrey – Chief Financial Officer. Mr. Yeoh has more than 20 years of working experience in finance and accounting. From 1980 to 1990, Mr. Yeoh was a vice president at The Chase Manhattan Bank and was involved in corporate banking, corporate finance and debt syndication with assignments in Singapore, New York, Hong Kong and Jakarta. Subsequent to that, Mr. Yeoh was the head of corporate banking and corporate finance at United Overseas Bank from 1991 to 1996 before joining Jasper Investments Limited (then known as Econ International Limited when it was involved in the business of civil engineering), a listed company on the SGX-ST, in 1996 where he was an executive director for finance, overseeing administrative and financial matters from 1996 to 2005. Of late, Mr. Yeoh has been actively involved in the offshore oil and gas drilling industry in his role as the chief executive officer and executive director of Jasper Investments Limited from 2006 to 2012. He was previously an independent director of Swissco Holdings Limited from 2012 to 2013 and is currently an independent director of ASJ Holdings Limited and Global Testing Corporation Limited, each of which is listed on the SGX-ST. Mr. Yeoh graduated from the London School of Economics with a Bachelor of Science in Economics (First Class Honours) and is a Fellow of the Association of Chartered Certified Accountants, United Kingdom.

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PACC Offshore Services Substantial shareholders The Kuok Group will hold 79% ownership of the group after IPO, 1% will be owned by three directors, 2% by the group’s employees, 4.7% by cornerstone investors and 14% by new IPO investors.

Source: IPO Prospectus

The Kuok Group and some of the group employees (around 80% of total shares post IPO) have agreed not to dispose of their shares for a period of 6 months from listing date. The cornerstone investors, making up around 5% of total shares, however are not subject to any moratorium.

Risks 

Oversupply of offshore vessels in the O&G industry. Current charter rates remain buoyant given the demand in the O&G industry. As many new players and vessels come into operations, it could lead to an oversupply of vessels in the markets that the group operates and could lead to a drop in charter rates.

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Drop in oil prices. With the group’s push into deepwater operations, deepwater oil exploration activity requires sustained higher oil prices to encourage the substantial additional investment required. Should there be a drop in oil prices due to oversupply or drop in demand in oil due to slowdown in the world economy, the group’s expansion plans and business will be affected.

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PACC Offshore Services

This publication is confidential and general in nature. It was prepared from data believed to be reliable, and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. No representation, express or implied, is made with respect to the accuracy, completeness or reliability of the information or opinions in this publication. Accordingly, neither we nor any of our affiliates nor persons related to us accept any liability whatsoever for any direct, indirect or consequential losses (including loss and profit) or damages that may arise from the use of information or opinions in this publication. Opinions expressed are subject to change without notice. NRA Capital Pte. Ltd. and its related companies, their associates, directors, connected parties and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add or dispose of or may materially interested in any such securities. NRA Capital Pte. Ltd. and its related companies may from time to time perform advisory, investment or other services for, or solicit such advisory, investment or other services from any entity mentioned in this report. The research professionals who were involved in the preparing of this material may participate in the solicitation of such business. In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. Additional information is, subject to the duties of confidentiality, available on request. Co. Reg. No.: 199904258C 133 Cecil Street #04-02 Keck Seng Tower Singapore 069535 Tel: (65) 6236 6878 Fax: (65) 6222 0093

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