31 July 2014 Asia Pacific/Singapore Equity Research Capital Goods (Small Cap SG (Asia)/Utilities SG (Asia)/Consumer Staples SG (Asia)/Conglomerates SG (Asia))

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

SECTOR REVIEW

1H14 results preview: Expect further consensus cuts Figure 1: We expect SMM's operating margin to remain at 11.0-11.5% levels 35.0

30.0 25.0 20.0 15.0 10.0

5.0 0.0 1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

Keppel O&M

1Q12

3Q12

1Q13

3Q13

1Q14

SMM

Source: Company data

■ Expect further consensus cuts. Consensus FY14 sector earnings estimates have been reduced by 20% since 2013, led by lower-than-expected margins. We expect the upcoming results to bring about further earnings cuts. ■ Focus on Sembcorp Marine's (NEUTRAL) drillship progress. In our view, the market will focus on the progress of Sembcorp Marine's first drillship, which was supposed to arrive in Brazil in July and likely delayed. We expect its operating margin to remain flat at 11.0-11.5% in 2Q14, driven by fewer rig deliveries relative to 1Q14. ■ Yangzijiang (OUTPERFORM) a bright spot. Yangzijiang is the only stock to see earnings upgrades YTD, and we expect margins to surprise positively with the delivery of four 10,000 TEU containerships in 2Q14. We also expect the management to provide details on the company's planned exit from its investment in held-to-maturity assets, which could remove a key overhang. ■ Sembcorp Industries (NEUTRAL) and Cosco's (UNDERPERFORM) earnings to be muted. We expect SCI's 2Q14 Utilities net profit to remain steady at S$90-95 mn, as low power spreads in Singapore are likely to remain a drag. Cosco is likely to face margin pressure from further provisions for its offshore projects. Figure 2: 1H14 reporting calendar Date

Company

Credit Suisse view

1-Aug Cosco Corp

↓ Potential provisions a drag to profitability

4-Aug Sembcorp Marine

↓ Focus on potential delays of first Sete Brasil drillship

6-Aug Yangzijiang

↑ Margin support from delivery of 10,000 TEU containerships

6-Aug Sembcorp Industries

= Stable Utilities net profit as SG power spreads remain low

Arrows denote up/downside risk to consensus numbers; Source: Company data, CS estimate

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

31 July 2014

Focus chart and table Figure 3: Singapore O&M—FY14 consensus EPS (Jan 2013 = 100) 140.00 130.00

YZJ

120.00 110.00

EZI

100.00

KEP

90.00

SCI

80.00

SMM

70.00 60.00 VARD

50.00

40.00 Jan-13

COS Mar-13 KEP

May-13

Jul-13

SCI

Sep-13 SMM

Nov-13

Jan-14

VARD

Mar-14

May-14

COS

Jul-14

YZJ

EZI

Source: Bloomberg, Credit Suisse Research

Figure 4: Offshore & Marine and Shipbuilding valuation comps

Cosco Corp Ezion Holdings Keppel Corp Sembcorp Industries Sembcorp Marine Yangzijiang

Rating

Current price

Target price

13A

P/E (x) 14E

15E

13A

P/B (x) 14E

15E

13A

ROE (%) 14E

15E

Div Yield 14E

U U O N N O

0.72 2.11 11.08 5.49 4.14 1.11

0.60 1.80 13.10 5.40 3.90 1.50

52.3 10.4 14.2 11.9 15.6 6.8

56.2 10.6 12.7 12.4 15.4 7.5

31.4 7.4 10.5 11.2 13.3 6.9

1.2 2.5 2.1 1.9 3.2 1.2

1.2 2.0 1.7 1.7 2.9 1.1

1.2 1.6 1.6 1.6 2.6 1.0

2.3 20.0 14.6 15.7 20.6 17.4

2.1 17.5 13.5 13.8 18.9 14.3

3.7 21.1 14.9 13.9 19.6 14.0

1.4% 0.0% 4.0% 3.1% 3.4% 4.4%

Source: Company data, Bloomberg, Credit Suisse estimates.

Singapore Offshore and Marine Sector

2

31 July 2014

Asia Pacific / Singapore Shipbuilding

COSCO Corporation (Singapore) Ltd (COSC.SI / COS SP) Rating UNDERPERFORM* Price (29 Jul 14, S$) 0.72 Target price (S$) 0.60¹ Upside/downside (%) -16.1 Mkt cap (S$ mn) 1,601 (US$ 1,289) Enterprise value (S$ mn) 3,962 Number of shares (mn) 2,239.24 Free float (%) 36.3 52-week price range 0.82 - 0.67 ADTO - 6M (US$ mn) 0.58 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Gerald Wong, CFA 65 6212 3037 [email protected]

Potential provisions a drag to profitability ■ Cosco Corporation will report its 1H14 results after market close on 1 August 2014. ■ 2Q14 results preview. We expect 2Q14 net profit of S$7 mn, below consensus estimate of S$13 mn, as potential provisions for its offshore projects are likely to be a drag on profitability. There are now three offshore projects that have been cancelled or at risk of cancellation by customers, including the Dalian Deepwater Development drillship (US$634 mn), ATP Octabuoy hull and topside (US$246 mn) and Sevan semi-submersible rig (US$525 mn). ■ 1Q14 results recap. Cosco’s 1Q14 net profit of S$13 mn represents 24% of consensus FY14 expectations, despite a write-back of provisions of S$3 mn and a change in depreciation policy which boosted PBT by S$9 mn. In October 2013, Dalian Deepwater Development terminated its contract to build a drillship due to delays in the delivery of the vessel, and the drillship is now held on the balance sheet of Cosco based on an estimated fair value of US$634 mn. Net gearing reached a record high of 1.72x from 1.31x in 4Q13. Consensus FY14E EPS has been lowered by 4.3% since the results. ■ Valuation. Cosco is trading at an FPE of 25.9x versus its historical average of 17.8x. It is trading at a P/B of 1.19x, versus its 08/09 low of 1.41x.

Share price performance Price (LHS)

Rebased Rel (RHS)

4 3 2 1 0 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14

120 100 80 60

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 3356.08 on 29/07/14 On 29/07/14 the spot exchange rate was S$1.24/US$1

Performance Over Absolute (%) Relative (%)

1M 3M 12M — -0.7 -5.3 -3.1 -3.5 -8.7

— —

Financial and valuation metrics Year Revenue (S$ mn) EBITDA (S$ mn) EBIT (S$ mn) Net profit (S$ mn) EPS (CS adj.) (S$) Change from previous EPS (%) Consensus EPS (S$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/13A 3,508.1 310.3 126.7 30.6 0.01 n.a. n.a. -71.0 52.3 1.4 10.8 1.2 2.3 80.6

12/14E 3,143.7 255.4 134.0 28.5 0.01 0 0.02 -7.0 56.2 1.4 15.5 1.2 2.1 107.1

12/15E 3,506.3 298.3 185.9 50.9 0.02 0 0.03 78.8 31.4 1.4 13.7 1.2 3.7 109.9

12/16E 3,528.4 343.8 239.3 73.1 0.03 0 0.04 43.4 21.9 1.4 11.5 1.1 5.2 99.2

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

Singapore Offshore and Marine Sector

3

31 July 2014

Figure 5: Cosco Corp—quarterly gross margin

200%

20.0% 18.0%

Figure 6: Cosco Corp—quarterly net gearing

18.2%

160%

16.0%

12.6%12.1%

11%10.7%

12.0%

7.5%

8.0%

120%

12.0%12.3%

11.1%

9.4%

10.0%

131%

140%

14.5%

14.0%

8.6%

7.4%

8.2%

9.2%

63% 45%

40%

16% 16% 5% 10%

20%

4.0%

-40% 3Q09

-1%

-20%

0.0% 1Q09

28%

0%

1.5%

2.0%

131%

84%

80% 60%

6.0%

141%

102% 104%

100%

10.7%10.8%

10.1% 9.3%

172%

168%

180%

16%

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

-23% 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Net gearing (%)

Gross margin %

Source: Company data

Source: Company data

Figure 7: Cosco Corp—provisions for losses

Figure 8: Cosco Corp—quarterly orderbook (US$ bn)

(S$m)

9.0

80

(%) 8.0

70

7.0

60

6.0

50

5.0

40

4.0

30

3.0

20

2.0

4.0

10

1.0

3.0

6.0

0.0 -1.0

-20

-2.0

1.0

-3.0

0.0

Provisions - LHS

7

7.4

7.3

7 6.8

7 6.3 5.6

5.2

5.9

5.5

6.1 6.1 5.9

6.4

6.1

6.1 5.8 5.9 5.7

6.4

6.7

7.2

7.8 7.6

5.0

0

2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

6.6

7.0

-10 -30

8.1

8.0

2.0

3.2

1.3

1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q14

Net orderbook (US$ bn)

% of revenue - RHS

Source: Company data

Source: Company data

Figure 9: Cosco Corp—P/E chart

Figure 10: Cosco Corp—P/B chart 24.00

45.00 40.00

20.00

35.00 30.00

16.00

25.00 20.00

12.00

15.00

8.00

10.00 5.00 0.00 Jul-03

current: 1.19x

4.00 Jul-05

Jul-07

P/E

Jul-09

Average

Source: Thomson Reuters

Singapore Offshore and Marine Sector

Jul-11

+ 1 SD

08/09 low: 1.41x

Jul-13

- 1 SD

0.00 Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Dec-13

Source: Thomson Reuters

4

31 July 2014

Asia Pacific / Singapore Conglomerates

Sembcorp Industries Limited (SCIL.SI / SCI SP) Rating NEUTRAL* Price (29 Jul 14, S$) 5.49 Target price (S$) 5.40¹ Upside/downside (%) -1.6 Mkt cap (S$ mn) 9,814 (US$ 7,899) Enterprise value (S$ mn) 9,129 Number of shares (mn) 1,787.55 Free float (%) 23.8 52-week price range 5.53 - 4.80 ADTO - 6M (US$ mn) 7.6 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Gerald Wong, CFA 65 6212 3037 [email protected]

Expect stable Utilities profit ■ Sembcorp Industries will report its 1H14 results after market close on 6 August 2014. ■ 2Q14 results preview. We expect underlying Utilities net profit of S$90-95 mn in 2Q14, stable from 1Q14 profit of S$92 mn. We expect Singapore Utilities' net profit to be around S$50-55 mn (vs S$53 mn in 1Q14), as lower power spreads are likely to be offset by greater contribution from on-site logistics. The average electricity pool price (Uniform Singapore Electricity Price or USEP) averaged S$137/MWh in 2Q14, flat from S$140/MWh in 1Q14. ■ 1Q14 results recap. Sembcorp Industries' 1Q14 net profit of S$185 mn represents 22% of consensus FY14 forecast, as strong performance by Urban Development was offset by weakness in Marine. Utilities' net profit of S$92 mn in 1Q14 was in-line, representing 24% of our FY14 forecast. Singapore PATMI was stable at S$53 mn in 1Q14, despite a 28% YoY and 23% QoQ decline in blended power spreads. China PATMI increased to S$17 mn in 1Q14 from S$13 mn in 1Q13, due to greater contribution from its Yangcheng and Shanghai Caojing power plants. Urban Development surged to S$20 mn in 1Q14 from S$7 mn in 1Q13, on more land sales in Nanjing, China. Consensus FY14E EPS has been lowered by 3.0% since the results. ■ Valuation. SCI's utility stub is trading at 10.2x FPE, above its historical average of 9.2x.

Share price performance Price (LHS)

Rebased Rel (RHS)

8 7 6 5 4 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14

120 110 100 90 80

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 3356.08 on 29/07/14 On 29/07/14 the spot exchange rate was S$1.24/US$1

Performance Over Absolute (%) Relative (%)

1M 3M 12M 2.2 2.2 8.5 -0.8 -0.6 5.1

— —

Financial and valuation metrics Year Revenue (S$ mn) EBITDA (S$ mn) EBIT (S$ mn) Net profit (S$ mn) EPS (CS adj.) (S$) Change from previous EPS (%) Consensus EPS (S$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/13A 10,797.6 1,463.4 1,160.1 820.4 0.46 n.a. n.a. 8.9 11.9 3.1 6.4 1.9 16.9 net cash

12/14E 11,719.9 1,445.1 1,139.9 790.3 0.44 0 0.45 -3.7 12.4 3.1 6.3 1.7 14.4 net cash

12/15E 13,408.7 1,573.7 1,268.4 873.0 0.49 0 0.50 10.4 11.2 3.1 5.5 1.6 14.5 net cash

12/16E 14,532.4 1,733.0 1,427.7 982.1 0.55 0 0.54 12.4 10.0 3.1 4.6 1.4 14.8 net cash

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

Singapore Offshore and Marine Sector

5

31 July 2014

Figure 11: SCI—quarterly reported Utilities' net profit

Figure 12: Singapore monthly average USEP (S$/MWh) 300

200 172

180

250

160 140

200 112

120

99

100 59

58

59

54

88

95

100 81

150

92

89

76

100

62

50

40 20

Jan-14 Apr-14

Jul-13

Oct-13

Jan-13 Apr-13

Jul-12

Oct-12

Apr-12

Jan-12

Jul-11

Oct-11

Oct-10

Jan-11 Apr-11

Jan-10 Apr-10 Jul-10

Jul-09

Oct-09

Oct-08

Jan-09 Apr-09

Apr-08 Jul-08

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Jan-08

Jan-07 Apr-07

0

0

Jul-07

60

79

Oct-07

80

76

USEP Average ($/MWh)

Utilities PATMI (S$mn)

Source: Company data, Credit Suisse estimates

Source: EMC

Figure 13: SCI—Utilities underlying net profit Net profit Singapore China Rest of Asia and Australia Middle East & Africa UK The Americas Others Total

1Q13

2Q13

3Q13

4Q13

FY13A

1Q14

2Q14E

FY14E

52 13 10 8 6 2 -2 89

69 20 12 10 2 1 -2 112

53 25 13 12 10 2 -12 104

52 12 10 8 -9 0 4 76

226 70 45 37 10 5 -12 381

53 17 12 7 4 2 -3 92

53 17 13 7 3 1 -2 92

219 67 65 31 11 5 -10 388

Source: Company data, Credit Suisse estimates

Figure 14: SCI—Utilities stub valuation 25

20

15

10

5

0 Dec-02

Dec-03

Dec-04

Dec-05 P/E

Dec-06

Dec-07 Average

Dec-08

Dec-09 +1 std dev

Dec-10

Dec-11

Dec-12

Dec-13

-1 std dev

Source: BLOOMBERG, Credit Suisse estimates

Singapore Offshore and Marine Sector

6

31 July 2014

Asia Pacific / Singapore Shipbuilding

Sembcorp Marine Ltd. (SCMN.SI / SMM SP) Rating NEUTRAL* Price (29 Jul 14, S$) 4.14 Target price (S$) 3.90¹ Upside/downside (%) -5.8 Mkt cap (S$ mn) 8,652 (US$ 6,964) Enterprise value (S$ mn) 7,618 Number of shares (mn) 2,089.76 Free float (%) 28.1 52-week price range 4.60 - 3.89 ADTO - 6M (US$ mn) 8.0 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Gerald Wong, CFA 65 6212 3037 [email protected]

Focus on progress of first drillship ■ Sembcorp Marine will report its 1H14 results after the market close on 4 August 2014. ■ 2Q14 results preview. We are expecting 2Q14 net profit of S$150 mn, below consensus of S$155 mn. Our forecast is based on operating margin of 11.0-11.5%, stable from 1Q14 margin of 11.1%. This is driven by fewer rig deliveries in 2Q14, as well as potential initial revenue recognition for third Sete Brasil drillship. In 2Q14, Sembcorp Marine completed two out of eight jackups due for delivery in 2014, including one Pacific Class 400 jackup and one JU 3000N jackup, versus four units delivered in 1Q14. ■ Focus on progress of first drillship. Based on management guidance at the 1Q14 results in May, Sembcorp Marine's first drillship for Sete Brasil was supposed to arrive in Brazil in July. We await management update on progress of the drillship and scope for potential delays. ■ 1Q14 results recap. Sembcorp Marine’s 1Q14 net profit of S$122 mn was below expectations, representing 20% of consensus FY14 forecast. 1Q14 revenue of S$1.3 bn represents 21% of consensus FY14 forecasts, due to lower-than-expected rig-building and ship repair revenue. Operating margin remained steady QoQ at 11.1%, but below consensus FY14 forecast of 11.7%. Ship repair revenue in 1Q14 stood at S$158 mn, flat from 4Q13 revenue of S$163 mn and 1Q13 revenue of S$156 mn despite the completion of the new Singapore integrated yard in August 2013. Consensus FY14E EPS has been lowered by 3.7% since the results. ■ Valuation: SMM is trading at FPE of 13.8x, a 12% discount to its historical average of 15.6x.

Share price performance 8

Price (LHS)

Rebased Rel (RHS)

120

6

100

4

80

2 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14

60

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 3356.08 on 29/07/14 On 29/07/14 the spot exchange rate was S$1.24/US$1

Performance Over Absolute (%) Relative (%)

1M 3M 12M 1.0 1.7 -7.6 -2.1 -1.1 -11.0

— —

Financial and valuation metrics Year Revenue (S$ mn) EBITDA (S$ mn) EBIT (S$ mn) Net profit (S$ mn) EPS (CS adj.) (S$) Change from previous EPS (%) Consensus EPS (S$) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/13A 5,525.9 748.6 644.3 552.7 0.26 n.a. n.a. 10.4 15.6 3.1 10.3 3.2 21.6 net cash

12/14E 5,765.1 956.2 662.5 561.4 0.27 0 0.29 1.4 15.4 3.4 8.0 2.9 19.9 net cash

12/15E 6,699.7 1,083.3 764.4 653.0 0.31 0 0.31 15.9 13.3 3.9 6.7 2.6 20.8 net cash

12/16E 7,519.5 1,224.0 895.1 774.8 0.37 0 0.33 18.2 11.3 4.3 5.5 2.3 21.9 net cash

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

Singapore Offshore and Marine Sector

7

31 July 2014

Figure 15: SMM—quarterly revenue (S$ mn) vs. operating margin (%)

Revenue (S$ mn)

3Q13

1Q14

0%

4Q13

0

2Q13

5%

1Q13

200

4Q12

10%

3Q12

400

2Q12

15%

1Q12

600

4Q11

20%

3Q11

800

2Q11

25%

1Q11

1,000

4Q10

30%

3Q10

1,200

2Q10

35%

1Q10

1,400

4Q09

40%

3Q09

1,600

2Q09

45%

1Q09

1,800

Operating margin (RHS)

Source: Company data

Figure 16: SMM—quarterly orderbook (S$ mn)

Figure 17: SMM—quarterly rig deliveries

14.0 12.1

12.7

13.6

14.4

13.5 12.3

12.9

3.5 3

3

12.0 10.0

4

4

16.0

3

2.5 8.4

8.0

7.9

7.4

6.7 5.5

6.0

5.0

4.3

4.7 4.4

5.2

5.7

2 6.6

1.5

5.2 5.1

2 1

1

4.0

0.5

2.0

2

2 3

2

2 1

2

1

1

1

2

1

2

1

1

1

1

2

2

4

2

3

1

1

1

1

1

1

1

1

1

1

2

2

2

0

0.0 1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

1Q14

Jackup

Net orderbook (S$ bn)

Source: Company data

Source: ODS Petrodata

Figure 18: SMM—P/E chart

Figure 19: SMM—P/B chart

30.00

Semisub

7.0

25.00

6.0

20.00

5.0

15.00

4.0

10.00

3.0

5.00

2.0

current: 3.0x 08/09 low: 2.0x

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

Average

Source: Thomson Reuters

Singapore Offshore and Marine Sector

+ 1 SD

1.0 0.0 Dec-95

Dec-97

Dec-99

Dec-01

Dec-03

Dec-05

Dec-07

Dec-09

Dec-11

Dec-13

- 1 SD

Source: Thomson Reuters

8

31 July 2014

Asia Pacific / Singapore Shipbuilding

Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI / YZJSGD SP) Rating OUTPERFORM* Price (29 Jul 14, S$) 1.10 Target price (S$) 1.50¹ Upside/downside (%) 35.7 Mkt cap (S$ mn) 4,240 (US$ 3,413) Enterprise value (Rmb mn) 24,045 Number of shares (mn) 3,837.08 Free float (%) 46.7 52-week price range 1.24 - 0.92 ADTO - 6M (US$ mn) 8.2 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Gerald Wong, CFA 65 6212 3037 [email protected]

Margin support from delivery of 10,000 TEU containerships ■ Yangzijiang will report its 1H14 results before the market opens on 6 August 2014. ■ 2Q14 results preview. We expect 2Q14 net profit of Rmb700 mn, above consensus of Rmb625 mn, as shipbuilding margins are likely to remain resilient. Yangzijiang delivered up to four 10,000 TEU containership in 2Q14, an acceleration from the one unit delivered in 1Q14. In addition, earnings are likely to be boosted by a potential tax write-back, as its main yard Jiangsu New Yangzi Shipbuilding (JNYS) was recently accredited as a "High/New Technology Enterprise", which allows the yard to enjoy a preferential income tax rate of 15% for three years starting from FY13. ■ Further clarity expected from planned exit from non-core businesses. In June 2014, Yangzijiang announced that it will gradually reduce its investments in non-core businesses and eventually divest these businesses. We expect management to provide further details on the company's planned exit from its investment in Rmb12.8 bn of held-to-maturity assets, which will remove a key overhang given concerns about potential write-downs. ■ 1Q14 results recap. 1Q14 net profit of Rmb799 mn was above expectations, representing 32% of consensus FY14 forecast. Shipbuilding's gross margin remained resilient at 24% in 1Q14 despite the depletion of pre-crisis contracts in its orderbook. This was driven by the delivery of large vessels with higher margins, including Yangzijiang's first 10,000 TEU containership to Seaspan. Total held-to-maturity financial assets declined to Rmb12.8 bn from Rmb14.1 bn at the end of 4Q13. Consensus FY14E EPS has been raised by 6.5% since the results. ■ Valuation: Yangzijiang is trading at a P/B of 1.14x, close to its historical trough.

Share price performance Price (LHS)

Rebased Rel (RHS)

4 3 2 1 0 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14

140 120 100 80 60

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 3356.08 on 29/07/14 On 29/07/14 the spot exchange rate was S$1.24/US$1

Performance Over Absolute (%) Relative (%)

1M 3M 12M 2.3 0.5 18.8 -0.8 -2.3 15.4

— —

Financial and valuation metrics Year Revenue (Rmb mn) EBITDA (Rmb mn) EBIT (Rmb mn) Net profit (Rmb mn) EPS (CS adj.) (Rmb) Change from previous EPS (%) Consensus EPS (Rmb) EPS growth (%) P/E (x) Dividend yield (%) EV/EBITDA (x) P/B (x) ROE (%) Net debt/equity (%)

12/13A 14,338.6 4,489.1 4,204.3 3,095.9 0.81 n.a. n.a. -13.5 6.8 4.4 5.5 1.2 18.6 19.3

12/14E 13,586.6 2,496.9 2,496.9 2,810.3 0.73 0 0.69 -9.2 7.5 4.4 9.6 1.1 15.0 14.7

12/15E 16,100.8 3,085.1 3,085.1 3,059.6 0.80 0 0.71 8.9 6.9 4.4 7.4 1.0 14.7 8.1

12/16E 17,771.1 3,542.1 3,542.1 3,282.9 0.86 0 0.77 7.3 6.4 4.4 6.3 0.9 14.3 5.1

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

Singapore Offshore and Marine Sector

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31 July 2014

Figure 20: Yangzijiang—quarterly orderbook (US$ bn)

Figure 21: Yangzijiang—quarterly order book (no. of vessels)

(US$ bn)

(No. of vessels)

6.0

160 140

5.0

120 4.0

2.4

3.0

2.3

2.6

2.7

2.9

1.9

1.5

2.7

3.0

100

1.4

1.1

1.0

0.7

0.9

1.2

1.7

2.6

3.0

2.0

73

80

77

82

89

86

93

76

63

52

50

60

81

38

35

42

40

40 1.0

3.2

0.0

2.9

2.6

2.4

2.3

2.7

3.2

3.4

3.2

3.1

2.7

2.6

2.7

2.5

2.0

2.1

2.1

2.2

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 Containership

54

20

48

42

39

38

51

50

45

48

46

25

29

39

39

42

29

94

58

30

30

31

0 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Bulk Carrier

Containership

Bulk Carrier

Source: Company data

Source: Company data

Figure 22: Yangzijiang—quarterly shipbuilding-related

Figure 23: Yangzijiang—held-to-maturity assets

gross margin (RMB bn)

50%

43%

45%

14.1

14.0

40% 35%

12.0

31%

30% 25%

16.0

27% 20%

20%

23% 20%21% 17%

27% 28%26%26% 26% 25% 24% 24% 23% 24% 23% 22% 21% 22% 21% 20%20%

20%

7.9

8.0

16%

13%

15%

10.0

10.0

24%

6.0 4.0

10%

4.8 3.1

5.4

5.6

3.5

3.3

0% 1Q07

3Q07

1Q08

3Q08

1Q09

3Q09

1Q10

3Q10

1Q11

3Q11

1Q12

3Q12

1Q13

3Q13

-

1Q14

1.7

10.5

9.9

3.8

4.2

3.4

3.9 5.7

3.9

4.4

8.4 3.4

2.1

7.5

7.2

12.8

6.3

9.8

8.6

5.2 1.9

10.4

11.6

12.5

4.4

6.1

6.7

2.5

4.6

2.0

5%

10.0

11.4

12.2

2.3

6.2

3.3

5.9

6.6

7.7

6.5

5.9

4.8

7.7

6.4

7.8 6.0

4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14

Gross margin (%)

Current HTM assets

Non-current HTM assets

Source: Company data

Source: Company data

Figure 24: Yangzijiang—P/E chart

Figure 25: Yangzijiang—P/B chart 12.00

40.00 35.00

10.00

30.00 8.00

25.00 20.00

6.00

15.00 10.00

4.00

5.00 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

2.00 09/09 lows:: 0.98x

P/E

Average

Source: Thomson Reuters

Singapore Offshore and Marine Sector

+ 1 SD

- 1 SD

0.00 Apr-07

Apr-08

Apr-09

Apr-10

Current: 1.14x Apr-11

Apr-12

Apr-13

Apr-14

Source: Thomson Reuters

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31 July 2014

Companies Mentioned (Price as of 29-Jul-2014) COSCO Corporation (Singapore) Ltd (COSC.SI, S$0.72, UNDERPERFORM, TP S$0.6) Ezion Holdings Ltd (EZHL.SI, S$2.11) Keppel Corporation (KPLM.SI, S$11.08) Sembcorp Industries Limited (SCIL.SI, S$5.49, NEUTRAL, TP S$5.4) Sembcorp Marine Ltd. (SCMN.SI, S$4.14, NEUTRAL, TP S$3.9) Vard Holdings Ltd (VARD.SI, S$1.08) Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI, S$1.1, 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. 3-Year Price and Rating History for COSCO Corporation (Singapore) Ltd (COSC.SI) COSC.SI Date 02-Aug-11 16-Sep-11 02-Nov-11 10-Sep-13 30-Apr-14

Closing Price (S$) 1.46 1.03 1.02 0.74 0.72

Target Price (S$) 1.20 0.70 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 Sembcorp Industries Limited (SCIL.SI) SCIL.SI Date 05-Aug-11 16-Sep-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$) 4.78 3.78 5.12 5.32 5.17 5.01 5.06 5.30 5.42

Target Price (S$) 6.78 4.88 5.48 6.08 5.88 5.08 5.18 5.28 5.40

* Asterisk signifies initiation or assumption of coverage.

Singapore Offshore and Marine Sector

Rating O

N

O U T PERFO RM N EU T RA L

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31 July 2014

3-Year Price and Rating History for Sembcorp Marine Ltd. (SCMN.SI) SCMN.SI Date 03-Aug-11 16-Sep-11 24-Feb-12 10-May-12 05-Nov-12 21-Feb-13 24-Feb-14 02-May-14

Closing Price (S$) 5.19 3.77 5.23 4.63 4.67 4.71 4.07 4.06

Target Price (S$) 6.47 3.98 4.68 4.38 4.28 3.98 4.00 3.90

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 Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI) YAZG.SI Date 16-Sep-11 14-Mar-12 10-Aug-12 07-Nov-12 10-Sep-13 01-Oct-13

Closing Price (S$) 1.02 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 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 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.

Singapore Offshore and Marine Sector

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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* 44% (53% banking clients) Neutral/Hold* 40% (50% banking clients) Underperform/Sell* 13% (47% 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.

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 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 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 of 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.

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 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.

Singapore Offshore and Marine Sector

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31 July 2014

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 (YAZG.SI, SCMN.SI, KPLM.SI, EZHL.SI, VARD.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, EZHL.SI, VARD.SI) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (YAZG.SI, KPLM.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, EZHL.SI, VARD.SI) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (YAZG.SI, SCMN.SI, EZHL.SI, VARD.SI) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (YAZG.SI, KPLM.SI) within the past 12 months For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.creditsuisse.com/disclosures or call +1 (877) 291-2683.

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 (SCIL.SI, YAZG.SI, SCMN.SI, COSC.SI, KPLM.SI, EZHL.SI, VARD.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 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.

Singapore Offshore and Marine Sector

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In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. 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Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments. When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.

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Singapore Offshore and Marine Sector

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