Oil and Gas Valuation Benchmarks

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Oil and Gas Valuation Benchmarks

• Alliance Research Sdn Bhd
• Head of Research Soh Meng Hui
• 11 June 2008

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Oil prices continue to chalk up new record highs
Global oil supply demand
High oil prices will extend the global slump

• Fundamentally, as long as supply and demand
  continues to remain tight, the risk premium will
  still keep increasing. Any negative newsflow will
  continue to fuel prices, especially heading
  towards hurricane season, which officially starts
  1st June. On a technical basis, the US122 is now
  the new support level. The market has managed to
  consolidate around the US125-level without a
  significant retracement despite the steep run-up
  to this level.

Source OPEC
Strong support at US122-level
Source Bloomberg
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Malaysian - Oil and Gas - PER of 9.2x FY09
earnings
Source Bloomberg
4
Regional - Oil and Gas stocks - PER of 13.5x
FY09 earnings
Source Bloomberg
5
Matrix of Malaysian oil and gas value chain
Source Various
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Scomi Marine
Coastal Contract
Dialog
KNM Group
Source Bloomberg
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Muhibbah
Petra Perdana
Sapura Crest
Wah Seong Group
Source Bloomberg
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Recently listed Oil and Gas Stock Petra Energy
Major shareholders Petra Perdana 64.6 (At
IPO) Listing Details Price RM1.74-Price
is adjusted for
1-for-2 bonus issue IPO price
RM2.62 Listing sought Main Board Listing
date 23 July 2007 Issue
size Shares (m) Malaysian
public 6.5 Restricted Offer for
Sale 6.8 Placement
32.7 Total 46.0 Prospectus
Forecast Net profit (RM m) 34.5 EPS (sen)
17.7 DPS (sen)
4.0 IPO PER (x)
9.8 Principal activities Petra Energy is
chiefly involved in providing a wide spectrum of
brown field services to the EP oil and gas
players. More specifically, Petra Energy
provides a suite of engineering and fabrication
services. Petra Energys ancillary service is
the re-chartering of domestic vessels
Source Bloomberg
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Recently listed Oil and Gas Stock Deleum
Major shareholders Datuk Vivekananthan a/l
M.V. Nathan - 31 (Indirect - 20) Listing
Details Price RM2.55 Listing
sought Main Board Listing date
1 June 2007 Issue
size Shares
(m) Malaysian public and employees 8.0
Placement
6.0 Offer for sale 6.5 Total
20.5 Prospectus
Forecast Net profit (RM m)
23.0 EPS (sen) 28.8 DPS
(sen) 14.4 IPO PER (x)
8.8 Principal activities Deleum
Bhd is chiefly involved in 1) the provision of
specialised equipments services such as subsea
production systems gas turbine packages, 2)
after sales-services including overhaul,
maintenance technical services provision of
drilling rig operations, and 3) provision of
oilfield chemicals services.
Source Bloomberg
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Recently listed Oil and Gas Stock Dayang
Enterprise
Major shareholders Naim Cendera Holdings
Berhad 34.0 Vogue Empire Sdn
Bhd
15.6 Tengku Yusof bin Tengku Ahmad
Shahruddin 14.9 Listing Details Price
RM1.45 Listing sought Main
Board Listing date 28
April 2008 Issue size
Shares (m) Malaysian public 17.6
Directors and employees
8.5 Identified investors 59.8 Total
83.4 Prospectus
Forecast Net profit (RM m)
45.2 EPS (sen)
12.8 IPO PER (x)
8.8 Principal activities
Enterprise Berhad (Dayang) is chiefly involved
in providing a spectrum of services to the EP
oil and gas players. More specifically, Dayang
provides a spectrum of brown field as well as
green field services (offshore topside
maintenance services and offshore hook-up and
commissioning), charter of marine vessels and
minor fabrication
Source Bloomberg
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Offshore Support Vessels Trading at 9.8x FY09
earnings
Source Bloomberg

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

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Fabricators Trading at 10.4x FY09 earnings
Source Bloomberg

• According to Institute Applied Energy (IAE),
  global capital expenditure is projected at
  US2.6trn in
• 2006-2030 or US104bn per annum. Around 10 of
  the global capital expenditure goes to process
• equipment.
• KNM, the biggest player in terms of market
  capitalisation and earnings is trading at 12.8x
  FYO9
• EPS
• Valuations are expected to improve on the back
  of
• - Tight capacity constraint due to the
  booming oil and gas sector
• - Potential MA play starting from the
  reverse-takeover of Ramunia from MISC. Via sale
  of its
• wholly-owned subsidiary Malaysia Marine and
  Heavy Engineering (MMHE) for RM3.2bn. The
• acquisition PER for MMHE works out to be
  19.5x FY03/07 PER.
• Historically, oil and gas fabricators trades at
  10x-30x PER band.

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Trading engineering equipment and maintenance -
Trading at 10.4x FY09 earnings
Source Bloomberg

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

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Integrated brownfield and greenfield services -
Trading at 8.9x FY09 earnings
Source Bloomberg

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

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Shipbuilder - Trading at 7.5x FY09 earnings
Source Bloomberg

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

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Refinery and retailing Trading at 11.4x FY09
earnings
Source Bloomberg

• Petronas Dagangan principally operates the local
  retail business of Petronas, Malaysias national
  oil giant. PDB is the biggest local oil gas
  company by market capitalisation.
• Shell Refining Company refines and manufactures
  petroleum products and is the key supplier to
  Shell Oil Products businesses in Malaysia (Shell
  Malaysia).
• Low valuation due to supply constraint and offer
  value.
• Historically, these players trades at 5x-14x PER
  band.

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Bright prospects, solid valuations
Source Bloomberg

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

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Speakers Profile - Soh Meng Hui
Name/Title Academic and Professional Qualifications Key Responsibility andInvolvement Work Experience
Soh Meng Hui Head of ResearchAlliance Research Sdn Bhd Bachelor of Arts and Master of Science (Finance) from University of Strathclyde, Scotland, United Kingdom Providing industry research, corporate research, economic research and investment advisory functions Providing market outlook, investment strategy, fixed income and equity recommendations to internal and external customers Soh joined the Alliance Banking Group as Head of Research in 2007, bringing with him more than 15 years of experience in international and local research particularly in equity and corporate research Prior to joining Alliance Banking Group, Soh served a major international bank in Hong Kong and was the Head of Research of two stock-broking firms in Malaysia. In the Group, he serves as the head and director of the research arm, Alliance Research Sdn. Bhd.- wholly-owned subsidiary of Alliance Investment Bank, providing research and investment advisory services.
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