MERMAID MARITIME(MMT.SP)：THINGS ARE GOING SWIMMINGLY

SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Initiating Coverage 3 January 2014 Singapore Co. Reg No: 198700034E MICA (P) : 099/03/2012 Mermaid Maritime Things Are Going Swimmingly Growth story in the making; initiate with BUY. We initiate coverage of Mermaid Maritime with a BUY and TP of SGD0.61, implying a 20% upside. Earnings should remain robust in FY9/14E, buoyed by a USD650m orderbook (including an unrecognised portion of a USD530m Saudi Aramco subsea contract), which practically guarantees a diluted EPS growth of 212%. But the larger investment case is Mermaid’s potential evolvement into an integrated oilfield services player a la Malaysia’s SapuraKencana, which the market has yet to price in. Industry dynamics in its favour. Mermaid is in a sweet spot to scale up its business as offshore oil and gas spending picks up pace. We see favourable industry dynamics, characterised by (1) high oil prices keeping E&P activities and drilling demand elevated, (2) 2013-2017 subsea sector spending likely to double vis-à-vis the preceding five years, and (3) Thailand’s national oil company PTTEP’s higher capex budget of USD25b for 2013-2017 (vs ~USD9b for 2008-2012). New board = Fresh opportunities. Mermaid’s new board of directors, put in place in Jul 2012, comprises two influential members. One is Mr Chalermchai Mahagitsiri, from the politically well-connected Mahagitsiri family in Thailand, who is keen to create a new legacy and unlock shareholder value. The other is Mr Prasert Bunsumpun, the former CEO of PTT Plc (eight years) and chairman of PTTEP (three years), whose presence would help open doors for Mermaid to secure contracts in Thailand, if not from PTTEP directly. Low gearing = More assets in the pipeline. While growth is limited by a lack of assets, Mermaid’s strong balance sheet suggests ample headroom to bulk up. With USD105m in its coffers, it intends to invest in two new tender rigs which should drive a 21% EPS growth in FY9/16E. Any profitable charter contract that Mermaid can secure for its new assets prior to delivery would give its stock price a lift, in our view. Strong growth prospects merit premium valuations. We base our target price of SGD0.61 on 14x FY9/14E P/E or an implied 1.2x FY9/14E P/BV. In our view, a premium P/E multiple (vis-à-vis stock history) is warranted, given Mermaid’s (1) projected three-year EPS CAGR of 59%, (2) scalability into an integrated oil and gas services player, and (3) strong recurring cash flow business model. Mermaid Maritime – Summary Earnings Table FYE Sep (USD m) FY12 FY13 FY14E FY15E FY16E Revenue 183.6 269.6 314.4 333.9 399.3 EBITDA 43.1 52.7 78.7 84.7 117.6 Recurring Net Profit 3.2 15.7 49.0 52.5 63.7 Recurring Diluted EPS (US cts) 0.2 1.1 3.5 3.7 4.5 Diluted EPS growth (%) n.a. 389 211 7 21 DPS (US cts) 0.0 0.9 0.5 0.5 0.5 P/E (x) 178.9 36.6 11.8 11.0 9.0 EV/EBITDA (x) 13.1 10.7 7.2 6.7 4.8 Div Yield (%) 0.0 2.1 1.2 1.2 1.2 P/BV (x) 1.5 1.1 1.0 1.0 0.9 Net Gearing (%) 18.3 (2.4) 11.2 9.9 47.3 ROE (%) 0.8 3.5 9.2 9.1 10.2 ROA (%) 0.6 2.5 6.7 6.8 6.7 Consensus Net Profit (USD m) 41.6 45.8 45.5 Source: Company, Maybank KE estimates Buy (new) Share price: SGD0.51 Target price: SGD0.61 (new) YEAK Chee Keong, CFA yeakcheekeong@maybank-ke.com.sg (65) 6432 1460 Stock Information Description: An international provider of specialist subsea and drilling services to the offshore oil and gas industry. Ticker: MMT SP Shares Issued (m): 1,413.1 Market Cap (USD m): 574.3 3-mth Avg Daily Turnover (USD m): 2.1 ST Index: 3,172.95 Free float (%): 24 Major Shareholders: % Thoresen Thai Agencies 57 Mahagitsiri Family 19 Key Indicators ROE – annualised (%) 3.5 Net gearing (x): Net cash NTA/shr (USD cts): 37.3 Interest cover (x): 4.5 Historical Chart Performance: 52-week High/Low SGD0.265/SGD0.515 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) 25.6 53.7 51.5 45.1 4.0 Relative (%) 25.7 54.1 49.9 44.8 3.9 0.200.250.300.350.400.450.500.55Jan-13Mar-13May-13Jul-13Sep-13Nov-13Jan-14MMT SP Equity. 3 January 2014 Page 2 of 31 Mermaid Maritime Mermaid Maritime at a glance Figure 5: Mermaid – orderbook recognition breakdown As disclosed by Mermaid Figure 6: Mermaid – orderbook recognition breakdown Maybank KE forecasts based on an analysis of its contracts Recognition of orderbook by Yr Subsea (USD m) Drilling (USD m) Total (USD m) Subsea Drilling FY14E 284 35 318 48% 59% FY15E 130 24 154 22% 41% FY16E+ 177 0 177 30% 0% Total 592 59 650 100% 100% % 91% 9% 100% Source: Company Source: Company, Maybank KE Figure 12: Subsea