02 July 2012

SINGAPORE EQUITY Investment Research

DMG & Partners Research OIL & GAS
Jason Saw Koon Khim +65 6232 3871 jason.saw@sg.oskgroup.com Terence Wong, CFA +65 6232 3896 terence.wong@sg.oskgroup.com Oil & Gas Technics Oil & Gas is a full service integrator of compression systems and process modules for the global offshore oil and gas sector. Stock Profile/Statistics Bloomberg Ticker STI Issued Share Capital (m) Market Capitalisation (S$m) 52 week H | L Price (S$) Average Volume (000) YTD Returns (%) Net gearing (%) Altman Z-Score ROCE/WACC Beta (x) Book Value/share (S) Major Shareholders (%) Ting Yew Sue Ting Tiong Ching Tay Mian Cheo 14.2% 6.9% 5.2% TGH SP 2,879 223 207 1.05 0.795 1,332 8.8% 28% 2.9 2.9 0.76 27

Initiation of coverage

Private Circulation Only

TECHNICS OIL & GAS

BUY Price Previous Target

S$0.93 N/A S$1.28

Under-researched oil & gas play with high-yield

We initiate coverage with a Buy rating and TP of S$1.28. Technics is a full service integrator of compression systems and process modules for the oil and gas sector. We estimate that the net profit of this small-cap is set to grow +12.6% CAGR over FY11-14F, driven by strong industry spending, and capacity expansion in Vietnam. We like Technics for its undemanding valuation at 9.3x FY12F P/E, attractive yield of 8.6% and earnings growth. Growing presence in Vietnam with new yard. Technics has two existing yards in Batam and Singapore with revenue capacity of S$250-300m. The company has entered into an agreement to acquire an existing private yard in Vietnam for a maximum consideration of S$10m that will double their revenue capacity. We believe the yard will be strategically important to secure more work in Vietnam. High cash generation; attractive yield sustainable. Technics business model requires very limited capex and generates strong operating cash flow. Balance sheet is healthy with a net gearing of 0.28x. In FY10 and FY11, the company paid 10.5S and 12.0S dividends respectively, and management is guiding for 8S dividend payout for FY12F. This translates into a yield of 8.6%. Earnings outlook: +12.6% net profit CAGR over FY11-14F. The earnings growth is largely driven by strong revenue growth of 24% CAGR over FY11-14F while we expect blended EBITDA margins to stay strong at around 18.0-20.5%. We expect Technics to build a stronger foothold in Vietnam after the purchase of the new yard in Vung Tau. The acquisition is expected to complete in Aug 2012. Valuation: TP of S$1.28 implies 37% upside. Technics valuation at 9.3x FY12 P/E with 8.6% yield is appealing. We use a target P/E of 12x on blended FY12/13F EPS, at the top of its historical range, as we expect P/E valuation to expand on stronger earnings, higher recognition by the market (stock is underresearched) and spin-off of Norr Offshore Group. Key risks are project execution, erosion in pricing power for EPCC projects, and delay in award of projects.
FYE 30 Sep (S$m) Turnover Reported net profit % Chg YoY Consensus EPS (S$ cents) DPS (S$ cents) Div Yield (%) ROE (%) ROA (%) P/E (x) P/B (x)
Source: Company data and DMG Estimates

Share Performance (%) Month 1m 3m 6m 12m Absolute 3.9% 1.1% 9.4% -7.0% Relative 1.2% 4.9% 1.5% 0.8%

6-month Share Price Performance

Share price (S$) 0.96 0.94 0.92

FY10 103.6 16.4 165.2 nm 12.5 10.5 11.3 62.2 14.6 7.4 5.0

FY11 125.8 18.7 14.2 nm 9.1 12.0 12.9 49.0 14.7 10.2 3.7

FY12F 165.7 20.6 10.0 21.4 10.0 8.0 8.6 38.1 13.7 9.3 3.4

FY13F 198.8 23.3 13.2 22.9 11.3 8.0 8.6 39.2 13.8 8.2 3.0

FY14F 238.6 26.7 14.7 24.8 13.0 9.0 9.7 39.3 14.0 7.2 2.6

0.90
0.88 0.86

0.84
0.82 0.80 29-Dec 29-Jan 29-Feb 31-Mar 30-Apr 31-May

DMG OSK Research

DMG & Partners Securities Pte Ltd may have received compensation from the company(s) covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication. of this publication
DMG OSK Research See important disclosures at the end of this publication DMG Research 1

TABLE OF CONTENT Investment Summary Company description Experienced management team Order book mostly short term Spin-off of contract engineering subsidiaries Earnings Outlook Valuation: Initiate with BUY with a TP of S$1.28 Key risks Financials Appendix Disclaimer 3 4 7 7 8 9 12 12 13 14 15

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 2

Investment Summary
A full service integrator of compression systems and process modules. Technics is involved in the design and fabrication of complex and highly customised compression systems and process modules used in the oil and gas industry. Some of the products offered by Technics are topside package for wellhead platforms, process equipment, waste water treatment, metering system, subsea structure and compressors. Technics has two existing yards in Batam and Singapore with an annual capacity of S$250-300m. Experienced management team. The company is co-founded by Robin Ting Yew Sue (Managing Director) and David Tay Mian Cheo (Executive Director) in 1990. Both are supported by an experienced key management team with an average experience of 19-20 years. Robin Ting and his two sons, Ting Tiong Ching and Ting Tiong Chau, own around 26% of the company while David Tay owns 5.2% stake in Technics. New yard space in Vietnam to double capacity. On 16 May 2012, Technics entered into a sale and purchase agreement with Vietnam Offshore Fabrication & Engineering (VOFE) for a maximum consideration of S$10m. VOFE owns the biggest fabrication yard in South Vietnam with a load-out capacity of 10MT/sqm and 5,000 DWT jetty. VOFE is also licensed to import and export oil and gas equipments in Vietnam. We estimate that the new yard will double its existing revenue capacity from S$250-300m to S$500-600m. We believe the yard will be strategically important to secure more oil & gas work in Vietnam. Catalyst from spin-off of Norr Offshore in Taiwan in 1H2013. Technics is taking steps to list its engineering units, Norr Systems and Wecom Engineering, on the Taiwan Stock Exchange. On 8 May 2012, Technics announced that they have consolidated their stakes in Norr Systems and Wecom Engineering into a new subdiary named Norr Offshore. We understand that post the restructuring, Technics will own 52% of Norr Offshore. We believe the listing will allow Technics to unlock the value of its investments in Norr Offshore. High cash generation; attractive yield sustainable. Technics business model requires very limited new capex, and generates strong operating cash flow. Balance sheet is relatively healthy with a net gearing of 0.28x. In FY10 and FY11, the company paid 10.5S and 12.0S dividends respectively, and management is guiding for 8S dividend payout for FY12F. This translates into a yield of 8.6%. Earnings outlook: +12.6% net profit CAGR over FY11-14F. The earnings growth is largely driven by strong revenue growth of 24% CAGR over FY11-14F while we expect blended EBITDA margins to stay strong at around 18.0-20.5%. We expect Technics to build a stronger foothold in Vietnam after the purchase of the new yard in Vung Tau. The acquisition is expected to complete in Aug 2012. Figure 1: Comparison table for Singapore listed small-cap engineering companies
Company Dyna-Mac Holdings Rotary Engineering ASL Marine Technics Oil & Gas Baker Technology PEC Hiap Seng MTQ Corp Ticker DMHL SP RTRY SP ASL SP TGH SP BTL SP PEC SP HSE SP MTQ SP FYE Dec Dec Jun Sep Dec Jun Mar Mar Mkt cap Last price (S$m) (S$) 355.6 292.3 240.6 207.3 203.1 149.3 85.1 77.2 0.395 0.515 0.570 0.930 0.290 0.585 0.280 0.790 EPS Hist-1 2.8 5.5 7.6 9.1 1.1 12.6 1.4 14.9 EPS Pros-1 2.1 3.0 7.6 10.0 n/a 5.6 4.3 n/a EPS Pros-2 2.3 4.1 10.1 11.3 n/a 7.2 n/a n/a P/E Hist-1 14.3 9.4 7.5 10.2 26.6 4.6 19.9 5.3 12.2 P/E Pros-1 19.1 17.0 7.5 9.3 n/a 10.5 6.5 n/a 11.7 P/E Pros-2 17.4 12.5 5.6 8.2 n/a 8.2 n/a n/a 10.4 ROE Hist-1 31.5 10.8 7.1 49.0 4.3 16.9 5.7 17.7 17.9 ROE Pros-1 16.4 5.9 9.2 38.1 nm 6.8 15.7 nm 15.3 P/B (x) Hist-1 2.9 1.0 0.7 3.7 1.1 0.7 1.2 0.9 1.5 P/B (x) Pros-1 2.7 1.0 0.7 3.4 nm 0.7 1.0 nm 1.6

Source: Bloomberg and DMG estimates

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 3

Company Description
Technics Oil & Gas is a full service integrator of compression systems and process modules for the global offshore oil and gas sector. The company was listed on Singapore Exchange SESDAQ in April 2003 and was upgraded to the Mainboard in January 2008. In Feb 2011, the company raised gross proceeds of S$12.7m through a placement of 13m new shares on Taiwans over the counter (OTC) market, GreTai Securities Market. The company is majority owned by co-founders, Robin Ting Yew Sue (14.21%) and David Tay Mian Cheo (5.18%). Other substantial shareholders are Ting Tiong Ching (6.86%) and Ting Tiong Chau (4.95%), the sons of Robin Ting. Management has delivered +23% net profit CAGR over FY02-11. Figure 2: Net profit track record since listed in April 2003
Net profit (S$m) 20.0 16.4 15.0 18.7

10.0
5.0 3.2

8.9 6.2 2.0 3.0 3.8

0.0
-5.0 2002
Source: Company data

-1.9 2003 -3.7 2004 2005 2006 2007 2008 2009 2010 2011

Technics operates in three key segments: Engineering, procurement, construction and commissioning (EPCC): In this segment, Technics provides solution on a turnkey basis starting from design and all the way up to installation and commissioning of process modules and equipment for the oil and gas industry. Two popular products under this segment are the wellhead satellite platforms and gas compressor systems. The typical duration of an EPCC project ranges from six months to 18 months. Contract engineering (CE): Non-turnkey basis. Customised service to clients in the form of procurement, fabrication and installation. Project duration can range two weeks to 12 months. Procurement and other services (PS): After sales services such as the supply of spare parts, repair and maintenance. Figure 3: Key products - Wellhead satellite platform Figure 4: Key products - Compressor package

Source: Company data

Source: Company data

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 4

Figure 5: Revenue breakdown by segments

Revenue (S$m) 140.0 120.0 100.0 80.0 60.0 40.0 20.0 0.0 PS CE EPCC
Source: Company data

EPCC

CE

PS

2008 5.7 40.9

2009 2.8 33.6

2010 2.2 36.5

2011 6.9 74.0

44.2

93.8

64.9

44.9

Few competitors in the gas compressor market. The company started the EPCC of gas compression systems in 2005. In this segment, there is limited competition in the market. Technics is the only authorised packager of gas compression systems for three world leading gas compressor manufacturers in the Asia Pacific region: Ariel, Cameron and Frick. Other authorised packagers in Singapore are GSI (for Ariel), a subsidiary of Malaysia listed Wah Seong, and Hiap Seng (for Cameron). Shipyards located in Singapore, Batam and one upcoming in Vietnam. Technics is currently operating from two yards in Loyang Industrial Estate, Singapore and Batam Island, Indonesia. The yards have a combined space of more than 40,000 sqm. The company has entered into an agreement to purchase a new yard in Vietnam with an area of 50,000 sqm. We estimate that this will nearly double its revenue capacity to S$500-600m per annum. Yard capacity is not a bottle neck at this stage but the new yard in Vietnam is strategically important as it enables the company to win more new jobs from oil companies in Vietnam. Figure 6: Yard details in Singapore and Batam
Description New office area (m2) Existing office (m2) Dormitory area (m2) Covered workshop (m2) Covered store area (m2) Blasting and painting area (m2) Yard open space (m2) Waterfront (m) Total plant area (m2) Source: Company data and DMG estimates Singapore 2,640 1,610 1,111 6,445 306 246 17,856 135 27,091 Batam n/a 288 n/a 4,056 900 n/a 14,160 166 23,000

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 5

Technics derived most of its revenue from the ASEAN market. The clients are typically major offshore shipyards, FPSO owners and operators, or engineering and process companies. In FY11, Singapore only accounted for 15% of its total revenue, and Asean, excluding Singapore, contributed 46% of total revenue. We understand Vietnam is the biggest market for Technics with 28% of FY11 revenue. Figure 7: Geographical breakdown of FY11 revenue
*Others comprise of Australia, China, Germany, Taiwan, U.K., Oman and U.S.

Singapore S$19.0m 15%

Others S$49.3m 39%

Asean, exSingapore S$57.4m 46%

Source: Company data

Strong customer base. Keppel FELS has been a customer since 1993 while in the past 12 months, Technics has added new reputable customers such as Siemens and IHI (Japan). Figure 8: Customer base

Source: Company data

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 6

Experienced management team

The company is led by its Managing Director (MD), Robin Ting Yew Sue, and its Executive Director (ED), David Tay Mian Cheo. They are the co-founders of Technics. Both of them are supported by an experienced management team, with an average 19-20 years of experience. Figure 9: Key management profile
Management profile Robin Ting Yew Sue Summary Executive Chairman and Group Managing Director. He is the co-founder of Technics. Responsble for general management and overall strategic planning and direction of the Group. Has more than 38 years experience in design, engineering and production of process modules and integrated systems for the oil and gas industry. Executive Director and co-founder of Technics. Responsible for business development, sales and marketing into new business segments and geographical markets. Group Financial Controller. Responsible for the financial, strategic planning, budgeting and corporate matters of the Group. Joined Technics in 2001. Managing Director of Wecom Engineering. Has over 30 years experience in cost estimation, project planning, sales and marketing in the oil & gas, and shipbuilding industries. Director of Technics Engineering Australia. He has more than 20 years experience in the oil and gas industry. He joined Technics in 2006. General Manager of Petro Process Systems. He has more than 17 years experience in engineering, operations, project management, sales and marketing in many industries. Senior General Manager for Norr Systems. Has more than 14 years experience in the offshore & marine industry. Director, Sales and Marketing of Technics Offshore Engineering. He has more than 17 years experience in cost estimation, sales and marketing in the oil and gas industry. He first joined the Group in 1994. Regional Manager of Technics Offshore Engineering. Responsible for the performance of the Compression Division. Has more than 18 years experience in handling rotating and allied equipment in the oil and gas industry.

David Tay Mian Cheo Lam May Yih Kiang Long Hoon John Lightbody Dr Lee Yak Wan Lee Tong Hua Tan Kia Teck

Murugaian Mohan Rajkumar

Source: Company data (Annual report 2011)

Order book mostly short term

Projects are usually delivered in less than 12 months. As of 11 April 2012, Technics has an outstanding order book of S$95.5m, which implies 0.6x its revenue in FY11. Technics contracts are relatively short-term, unlike the order book for major shipyards like Keppel and Sembcorp Marine. EPCC contracts are typically between six months to 18 months while the contract duration for Contract Engineering can range from two weeks to 12 months. Figure 10: Order book movement
Order book (S$m)

160
140 120 100 84 125

141

114

110

95.5

80 60
40 20 0 26.11.07 17.11.08 30.11.09 30.11.10 9.11.11 11.04.12
Source: Company data and DMG estimates

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 7

Figure 11: Major new orders announced in the past 24 months

Date 05-Mar-12 03-Jan-12 11-Oct-11 13-Sep-11 23-Aug-11 18-May-11 07-Mar-11 01-Mar-11 31-Jan-11 24-Jan-11 3-Jan-11 19-Nov-10 23-Sep-10 Customer not disclosed China, Russia Southeast Asia Vietsovpetro. Vietnam Malaysia, FPSO Petrojari Cidade China, Russia Russia not disclosed Not disclosed Russia Middle East Not disclosed Vietsovpetro. Vietnam Project Turnkey of ship automation and vessels are scheduled to be delivered in FY12. Supply super structure for jackup rig and supply and manufacture well testing equipment Supply five units of Vapor Recovery Compressor Packages Topside equipment for Wellhead Satellite Platform GT-1 and MT-1 Two CE contracts for structural module and power generation module Manufacture and supply of Well Testing Equipment Equipment for modification of jackup rig Murmanskaya, gas compressor system Turnkey vessel construction and service contracts Turnkey vessel construction and service contracts First CE contract from Russia for oil and gas process equipment EPCC contract for process equipment for Early Production Systems Turnkey vessel construction and service contracts Topside equipment for Wellhead Satellite Platform RC-6 and RC-7 Value S$10.5m S$10.1m S$8.1m S$32m S$8.5m S$5.6m S$13.1m S$22.8m S$25.6m S$1.7m S$23.5m S$25.6m S$35m

Source: Company data and DMG estimates

Proposed spin-off of contract engineering subdiairies in 1H2013

New engineering unit will be listed in Taiwan. On 5 Jan 2012, Technics announced their intention to spin-off its subsidiaries in the contract engineering segment, Norr Systems and Wecom Engineering, on the Gretai Securities Market of Taiwan. Norr Systems provides electrical propulsion systems, ship-board automation systems and dynamic positioning training. Wecom Engineering is involved in the manufacturing and repair of marine and industrial mechanical parts. Management targets to list the unit in 1H2013. Completed restructuring of shareholding in Norr Systems and Wecom. On 8 May 2012, Technics announced that they have completed the restructuring of its shareholding in Norr and Wecom Group by consolidating all its interests under a new subsidiary named Norr Offshore Group. We estimate that its shareholding in Norr Offshore Group is around 52%. Post listing, we believe Norr Offshore Group will be deconsolidated from the balance sheet, and this will turn Technics balance sheet back into net cash. We have not taken into account the effect of the listing in our earnings model.

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 8

Earnings Outlook
Revenue: We expect Technics to grow its revenue by 32% in FY12 and 20% in FY13 to S$165m and S$199m respectively. We think our revenue forecast is achievable: in 1HFY12, revenue grew +49% YoY to S$85m, which accounted for 52% of our FY12 forecast. Revenue in 2HFY12 will be underpinned by existing orders in hand. As of 11 April 2012, Technics has an backlog order book of S$95.5m, sufficient to keep workload high up to 1QFY13 (assuming zero new order win). Figure 12: Revenue breakdown
S$m EPCC CE PS

300.0 250.0 200.0 150.0 100.0 50.0 0.0

2008 2009 2010 2011 2012F 2013F 2014F We project revenue to surge 24% CAGR over FY11-14F

Source: Company data and DMG estimates

Margins: Set to stay strong on good pricing environment. We estimate blended EBITDA margins of 18.0-20.5% in FY12-14F as we believe pricing power remains strong for its products. Management guided that they can maintain its existing margins for the next two years. In 1HFY12, Technics achieved EBITDA margin of 20.6% (vs. 23.0% in 1HFY11). The highest margin comes from the EPCC segment, where EBITDA margins are around 27%. Figure 13: EBITDA margins: historical and forecasts
EBITDA margins (%) Blended Group margins EPCC CE PS 2008 7.6% 7.1% 7.1% 14.2% 2009 8.5% 7.6% 10.5% 15.9% 2010 25.4% 27.9% 20.0% 41.5% 2011 18.9% 26.8% 14.3% 17.0% 2012F 20.5% 27.0% 14.3% 17.0% 2013F 19.3% 25.0% 13.8% 15.0% 2014F 18.0% 23.0% 13.0% 15.0%

Source: Company data and DMG estimates

Figure 134EBITDA margins projected to hold steady

EBITDA margins (%) EPCC CE PS

Figure 15: Group EBITDA: Historical and forecasts

S$m 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 EPCC CE PS 38.4 34.0 26.3 23.8 42.8

45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
2008 2009

11.1 6.9

2010

2011 2012F 2013F 2014F

2008

2009

2010

2011

2012F 2013F 2014F

Source: Company data and DMG estimates

Source: Company data and DMG estimates

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 9

Net profit: Set to grow 12.6% CAGR over FY11-14F. We estimate 12.6% net profit CAGR over the next three years (FY11-14F) with grow largely driven by higher revenue (+24% revenue CAGR) while margins moderate to more sustainable levels. In 1HFY12, Technics posted a net profit of S$10.27m (+19% YoY) on higher revenue of S$85.1m (+49% YoY). Figure 16: Profit and loss statement
FYE 30 Sep (S$m) Profit and loss Revenue EPCC CE PS COGS Gross profit Marketing and distribution Admin expenses Net other income/(expenses) Forex adjustments Impairment of receivables Impairment of other receivables Inventories writedown/writeoff Gain on disposal of associate or subsidiary Gains on disposal of PPE Others EBITDA Depreciation and amortisation Operating profit Interest income Interest expense Share of results of associates Exceptional items Profit before tax Income tax Minority interest Net profit Net profit (adjusted for exceptional items) Growth % Revenue EBITDA Operating profit Profit before tax Net profit Margins analysis Gross profit % admin to sales % marketing to sales EBITDA Operating profit Profit before tax Income tax effective rate Net profit Source: Company data and DMG estimates 21.9% -14.4% -1.2% 7.6% 6.3% 5.5% -16.0% 5.0% 24.6% -17.6% -0.9% 7.6% 6.1% 4.9% -28.5% 4.2% 22.0% -14.2% -0.5% 8.5% 7.3% 5.3% -21.6% 4.7% 42.2% -17.4% -1.7% 25.4% 23.1% 18.7% -24.9% 15.8% 37.3% -19.3% -1.7% 18.9% 16.3% 17.0% -21.3% 14.9% 36.8% -17.0% -2.0% 20.5% 17.8% 18.5% -17.0% 12.4% 35.8% -17.0% -2.0% 19.3% 16.8% 17.1% -17.0% 11.7% 34.7% -17.0% -2.0% 18.0% 15.7% 16.0% -17.0% 11.2% -15.0% -63.8% -67.9% -70.3% -66.7% 51.3% 51.1% 46.0% 34.7% 28.0% 43.5% 61.4% 70.5% 55.8% 62.3% -20.5% 137.4% 152.3% 182.2% 165.2% 21.4% -9.4% -14.5% 10.0% 14.2% 31.7% 42.6% 44.6% 43.4% 10.0% 20.0% 13.0% 13.0% 11.5% 13.2% 20.0% 11.6% 11.8% 12.1% 14.7% 60.0 22.7 27.1 10.2 -46.8 13.2 -0.7 -8.7 0.1 -0.5 0.0 -0.3 0.0 0.0 0.9 -0.1 4.5 -0.7 3.8 0.1 -0.8 0.0 0.1 3.3 -0.5 0.2 3.0 2.8 90.8 44.2 40.9 5.7 -68.4 22.4 -0.8 -16.0 0.9 0.7 -0.2 0.0 0.0 0.2 0.0 0.2 6.9 -1.3 5.6 0.0 -1.5 -0.6 0.9 4.4 -1.3 0.7 3.8 2.9 130.2 93.8 33.6 2.8 -101.6 28.6 -0.6 -18.5 -0.3 -0.6 -0.1 -0.3 0.0 0.2 0.0 0.6 11.1 -1.6 9.5 0.1 -2.1 -0.4 -0.3 6.9 -1.5 0.8 6.2 6.4 103.6 64.9 36.5 2.2 -59.9 43.7 -1.8 -18.0 -2.3 -2.1 -0.5 -0.5 0.0 0.0 0.0 0.7 26.3 -2.4 23.9 0.1 -1.4 -0.9 -2.3 19.4 -4.8 1.8 16.4 18.7 125.8 44.9 74.0 6.9 -78.9 46.9 -2.2 -24.2 0.2 -0.8 0.3 0.0 -0.4 0.0 0.1 0.9 23.8 -3.4 20.4 1.9 -1.3 0.0 0.2 21.3 -4.5 1.9 18.7 18.5 34.0 -4.4 29.6 2.3 -1.2 0.0 0.0 30.6 -5.2 -4.8 20.6 20.6 38.4 -5.0 33.4 1.9 -1.2 0.0 0.0 34.1 -5.8 -5.0 23.3 23.3 42.8 -5.5 37.4 2.1 -1.2 0.0 0.0 38.2 -6.5 -5.0 26.7 26.7 165.7 82.8 72.8 10.0 -104.6 61.0 -3.3 -28.2 0.0 198.8 99.4 89.4 10.0 -127.6 71.2 -4.0 -33.8 0.0 238.6 119.3 109.3 10.0 -155.9 82.7 -4.8 -40.6 0.0 2007 2008 2009 2010 2011 2012F 2013F 2014F

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 10

Figure 17: Cash flow statement

FYE 30 Sep (S$m) Profit before tax Depreciation Interest income Interest expense Share of results of associates Other non-cash Operating profit before working cap chgs Working capital changes Income tax Net cash flow from operating activities Capex Disposal of PPE Investments Others Cash flow from investing Issuance of shares/warrants Borrowings Dividends to shareholders Others Interest received Interest paid Cash flow from financing Net changes in cash and equivalent Net effect of exchange rate changes Cash at start Cash at end Source: Company data and DMG estimates 2007 2.8 0.7 -0.1 0.8 0.0 -0.3 3.8 -3.3 -1.7 -1.2 -3.3 2.5 0.8 0.0 0.1 0.0 5.1 -4.3 0.8 0.1 -0.8 1.0 -0.2 -0.1 4.9 4.6 2008 4.4 1.3 0.0 1.5 0.6 -0.3 7.5 -14.1 -0.7 -7.3 -13.2 0.0 -0.7 0.0 -13.9 6.8 32.2 -2.1 0.0 0.0 -1.5 35.4 14.2 0.4 4.6 19.2 2009 6.9 1.6 -0.1 2.1 0.4 0.8 11.7 2.8 -1.5 12.9 -4.3 0.0 0.2 0.0 -4.1 0.0 -12.4 -5.3 -0.2 0.1 -2.1 -19.9 -11.1 0.9 19.2 9.0 2010 19.4 2.4 -0.1 1.4 0.9 1.5 25.5 21.6 -1.5 45.5 -11.4 0.0 -1.3 0.0 -12.7 0.0 -1.7 0.0 -11.5 0.1 -1.4 -14.5 18.3 -1.3 9.0 26.1 2011 21.3 3.4 -1.9 1.3 0.0 0.0 24.1 -30.9 -3.6 -10.4 -6.2 0.3 -0.1 -14.5 -20.5 41.1 10.8 -31.8 -6.3 1.6 -1.3 14.1 -16.8 -0.9 26.1 8.4 8.4 9.2 9.2 14.7 14.7 23.7 2012F 30.6 4.4 -2.3 1.2 0.0 0.0 34.0 4.5 -5.2 33.3 -10.0 0.0 -7.0 0.0 -17.0 0.0 0.0 -16.5 0.0 2.3 -1.2 -15.5 0.8 2013F 34.1 5.0 -1.9 1.2 0.0 0.0 38.4 -1.4 -5.8 31.2 -10.0 0.0 0.0 0.0 -10.0 0.0 0.0 -16.5 0.0 1.9 -1.2 -15.8 5.4 2014F 38.2 5.5 -2.1 1.2 0.0 0.0 42.8 -1.6 -6.5 34.7 -10.0 0.0 0.0 0.0 -10.0 0.0 0.0 -16.5 0.0 2.1 -1.2 -15.6 9.1

Figure 18: Strong ROE

% 70.0 62.2 57.0

Figure 19: Strong ROA

% 30.0 49.0 38.1 39.2 39.3
25.0

26.6

60.0
50.0 40.0 30.0

20.0 15.0
14.6 14.7 13.7 13.8 14.0

22.1
15.3 16.4

22.2

9.8
10.0 5.0

20.0
10.0 0.0

6.4 5.3 5.9

0.0

Source: Company data and DMG estimates

Source: Company data and DMG estimates

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 11

Figure 20: Dividend per share and payout ratio

DPS (S$) 0.140 0.120 0.100 0.080 0.060

Dividend per share (LHS)

Dividend payout ratio (RHS) 0.120 0.105

0.090 0.080 0.080

% 140 120 100 80 60

0.040 0.020
0.000

0.020

0.015

0.020

0.028

40 20
0

2006

2007

2008

2009

2010

2011

2012F

2013F

2014F

Source: Company data and DMG estimates

Valuation: Initiate with BUY with a TP of S$1.28

TP of S$1.28 based on 12x blended FY12/13F EPS. We think Technics valuation is appealing at 9.3x FY12F P/E and 8.2x FY13F P/E. The stock also offers an attractive yield of 8.6%. In the past three years, the stock traded at a low of 4.0x forward P/E and a high of 11.7x forward P/E. We value Technics at S$1.28 based on 12x blended FY12/13F EPS as we expect P/E valuation to expand on the back of stronger earnings expansion, and catalysts from the spin-off of its subsidiary, Norr Offshore Group, on the Taiwan Stock Exchange. Our TP implies 37% upside from its last closing price. Figure 21: 12-mth fwd P/E since Oct 2005
Forward P/E band 50.0
45.0 40.0

Figure 22: 12-mth fwd P/E in the last three years

Forward P/E band 14.0
12.0 10.0 8.0 +1SD Mean

+2SD

35.0
30.0 25.0

20.0
15.0 10.0

6.0
4.0 2.0 0.0 Jul-09

-1SD
-2SD

5.0
0.0 Oct-05 Oct-06 Oct-07 Oct-08 Oct-09 Oct-10 Oct-11
Source: Bloomberg and DMG estimates

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Source: Bloomberg and DMG estimates

Key risks

Project execution risk such as incorrect estimation of costs, cost overrun and failure to deliver project on time. Erosion in pricing power for EPCC projects. Currently, the company is one of the few authorised packagers of gas compressor systems for Ariel and Cameron in the Asia Pacific region. Existing pricing power may not be maintained if new competitors emerge. Delay in award of new projects. Clients may choose to delay the award of projects due to uncertain market conditions and this will have adverse impact on resource allocation in the yard.
OSK Research See important disclosures at the end of this publication DMG OSK Research 12

See important disclosures at the end of this publication DMG Research

FINANCIAL TABLES
FYE 30 Sep (S$m) Income statement Revenue Expenses (except D&A) EBITDA Depreciation and amortisation EBIT Interest income Interest expense Share of results of associates/JVs Exceptional items Profit before tax Income tax Minority interest Net profit (reported) Net profit (pre-exceptional/core) Balance Sheet Total Assets Fixed assets Other long-term assets Inventory Receivables Other short-term assets Cash and short term investment Total Liabilities ST debt Payables Other short-term liabilities LT debt Other long-term liabilities Total Equity Shareholders' funds Minorities Cash Flow Statement Operating cashflow Capex & acquisitions Free cashflow Other inv cashflow New borrowings Share issuance Dividends paid Other fin cashflow Net cashflow YoY Growth Revenue (%) Operating profit (%) Profit before tax (%) Net profit (%) Margins EBITDA (%) EBIT (%) PBT (%) Per Share Data Outstanding shares EPS (S cents) DPS (S cents) BVPS (S cents) ROE (%) ROA (%) Net debt-to-total equity (%) P/E (DMG) P/B (x) Dividend yield (%) Source: Company data and DMG estimates FY10 103.6 -77.3 26.3 -2.4 23.9 0.1 -1.4 -0.9 -2.3 19.4 -4.8 1.8 16.4 18.7 FY11 125.8 -102.0 23.8 -3.4 20.4 1.9 -1.3 0.0 0.2 21.3 -4.5 1.9 18.7 18.5 FY12F 165.7 -131.7 34.0 -4.4 29.6 2.3 -1.2 0.0 0.0 30.6 -5.2 -4.8 20.6 20.6 FY13F 198.8 -160.4 38.4 -5.0 33.4 1.9 -1.2 0.0 0.0 34.1 -5.8 -5.0 23.3 23.3 FY14F 238.6 -195.7 42.8 -5.5 37.4 2.1 -1.2 0.0 0.0 38.2 -6.5 -5.0 26.7 26.7

112.0 31.4 0.0 9.3 13.1 13.0 45.3 88.5 30.4 18.9 33.0 5.1 1.0 23.6 24.5 -0.9

141.9 34.1 12.1 8.7 30.0 36.2 20.8 92.7 36.9 27.3 22.7 4.5 1.2 49.2 51.9 -2.8

159.7 39.7 12.1 9.1 34.0 43.2 21.6 101.7 33.1 36.3 22.7 8.3 1.2 58.1 56.0 2.0

178.8 44.7 12.1 10.9 40.9 43.2 27.0 108.9 33.1 43.6 22.7 8.3 1.2 69.9 62.9 7.0

202.8 49.3 12.1 13.1 49.0 43.2 36.1 117.6 33.1 52.3 22.7 8.3 1.2 85.1 73.1 12.0

45.5 -11.4 34.1 -1.3 -1.7 0.0 0.0 -12.8 18.3

-10.4 -5.9 -16.3 -14.6 10.8 41.1 -31.8 -5.9 -16.8

33.3 -10.0 23.3 -7.0 0.0 0.0 -16.5 1.0 0.8

31.2 -10.0 21.2 0.0 0.0 0.0 -16.5 0.7 5.4

34.7 -10.0 24.7 0.0 0.0 0.0 -16.5 0.8 9.1

-20% 152% 182% 165%

21% -14% 10% 14%

32% 45% 43% 10%

20% 13% 11% 13%

20% 12% 12% 15%

25.4% 23.1% 18.7%

18.9% 16.3% 17.0%

20.5% 17.8% 18.5%

19.3% 16.8% 17.1%

18.0% 15.7% 16.0%

131 12.5 10.5 18.7 62.2 14.6 Net cash 7.4 5.0 11.3

206 9.1 12.0 25.2 49.0 14.7 42.0 10.2 3.7 12.9

206 10.0 8.0 27.2 38.1 13.7 34.1 9.3 3.4 8.6

206 11.3 8.0 30.5 39.2 13.8 20.6 8.2 3.0 8.6

206 13.0 9.0 35.5 39.3 14.0 6.3 7.2 2.6 9.7

OSK Research See important disclosures at the end of this publication DMG OSK Research See important disclosures at the end of this publication DMG Research 13

APPENDIX Figure 23: Company structure

Source: Company data (Annual Report 2011) * Does not reflect the recent restructuring of the shareholding in Norr Systems and Wecom Engineering

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DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited.

DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. As of the day before 2 July 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 2 July 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: Analyst Company a) Nil b) Nil DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur
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