Company Update 3 October 2011

Maybank IB Research
PP16832/01/2012 (029059)


Turning attractive; upgrade to Buy

Positive forward planning. TOFFs calculated move to order 2 new
PSVs could benefit it well, as we anticipate an upcoming slew of
PETRONAS PSV contract awards in 2012. While financing and
operating risks are concerns, the share price downside is limited with
the stock currently trading below its 2008s P/BV trough valuations,
coupled with improving prospects. The stock trades at just 0.6x P/BV,
which is not justified considering that profits will start to turn in from
2012. Our RM0.98 TP (0.8x P/BV) offers 32% upside potential.
Orders 2 PSVs for RM200m. TOFF has contracted Muhibbah
Engineering and Labuan Shipyard to build 2 platform supply vessels
(PSVs) for RM200m. The 2 PSVs are scheduled for delivery in 2013.
We would note that both shipyards have no PSV building track record.
Paying a fair price, market rate. We gauge these PSVs to be of
medium range specifications (i.e. 3,000-4,000dwt, c. 80m in length) and
capable of deepwater operations. Based on these terms, the RM100m
price tag per vessel appears fair when compared to with recent
newbuilds. Bumi Armada recently ordered a pair of PSVs from Nam
Cheong for over USD40m each with a 2012 due date.
No contracts in hand but probability of securing charters are high.
We understand that the new orders are not backed by existing charter
contracts. However, the likelihood of securing charters for PSV is
higher compared to other vessels in the market. It is the preferred
transportation choice for its speed, especially in the offshore deepwater
field as it covers longer distances at a shorter period vis--vis its peers.
Targets domestic contracts, net gearing to rise to 1.9x. We expect
these newbuilds to be targeted for domestic charter contracts which are
expected to come in by end-2012, just before their delivery date. TOFF
will likely finance the purchases on an 85:15 debt-to-equity basis. As
such, net gearing should rise from 1.4x now to 1.9x.
Potential payback within 6 years. Based on an estimated dayrate of
USD30k, each vessel should deliver RM32.9m in revenue and RM8.9m
in net profit (27% margin) after netting off depreciation cost (-RM5.0m),
interest expense (-RM6.0m; 7% interest), administration, crew costs (-
RM10.0m) and taxes (-RM3.0m). As such, these 2 vessels could add
about RM17.8m p.a. to TOFFs future net profit. We have not imputed
this into our forecasts as the impact is not during our forecast period.
Tanjung Offshore Summary Earnings Table Source: Maybank-IB

Tanjung Offshore Summary Earnings Table
FYE Dec (RM m) 2010A 2011F 2012F 2013F
Revenue 532.6 590.9 607.6 638.7
Recurring Net Profit 7.0 (1.4) 8.8 9.4
Recurring Basic EPS (Sen) 2.6 (0.5) 3.0 3.2
EPS growth (%) 109.2 n.m n.m. 6.9
DPS (Sen) 0.0 0.0 0.0 0.0

PER 28.0 (149.9) 24.5 22.9
EV/EBITDA (x) 9.9 11.80 10.23 9.91
Div Yield (%) 0.0 0.0 0.0 0.0
P/BV(x) 0.6 0.6 0.6 0.6

Net Gearing (%) 135.7 138.2 130.1 120.3
ROE (%) 1.9 (0.4) 2.3 2.4
ROA (%) 3.8 3.1 4.1 4.1
BVPS (RM) 1.34 1.22 1.25 1.28
Consensus net profit (RMm) - 9.5 22.6 21.4
Tanjung Offshore
Buy (from Hold)
Share price: RM0.74
Target price: RM0.98 (unchanged)


Chong Ooi Ming
Ming.c@maybank-ib.com
(603) 2297 8676















Description: Pipe-coating operator; rental and
manufacturer of gas compressors.

Information:
Ticker: TOFF MK
Shares Issued (m): 291.9
Market Cap (RM m): 216.0
3-mth Avg Daily Volume (m): 0.22
KLCI: 1,387.13

Major Shareholders: %
Khalid Omar 33.7
Ekuinas 24.0
LTH 10.0


Price Performance:
52-week High/Low RM1.86/RM0.72


1-mth 3-mth 6-mth 1-yr YTD
(10.8) (32.7) (46.8) (59.8) (52.9)



Price Chart (RM0.74)
0.0
0.5
1.0
1.5
2.0
2.5
Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
TOFF MK Equity









Tanjung Offshore

3 October 2011 Page 2 of 4
Valuations at rock bottom, 32% upside. TOFFs share price has
plunged by 53% YTD and the stock currently trades below its 2008
trough P/BV valuations of 0.7x despite the offshore sectors improving
prospects. We think this presents investors an excellent bargain, given
that earnings visibility will be greatly improved should its new PSV be
chartered out at fair rates. We upgrade TOFF to a Buy with an
unchanged RM0.98 target price, pegging it to a 0.8x P/BV valuation.

Tanjung Offshore P/BV (x)
-
1.0
2.0
3.0
4.0
Dec-05 Jul-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10 Apr-11
(x)
Mean: 1.5
- 1 sd: 0.8
+ sd: 2.3

Sources: Bloomberg, Maybank-IB


Tanjung Offshore

3 October 2011 Page 3 of 4

INCOME STATEMENT (RM m) BALANCE SHEET (RM m)
FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Turnover 532.6 590.9 607.6 638.7 Net Fixed Assets 760.5 752.0 733.6 705.2
Cost of goods sold (402.4) (487.2) (499.2) (520.5) Invts in Assocs & JVs 6.1 11.6 19.1 27.6
Gross profit 130.2 103.8 108.3 118.2 Other LT Assets 17.2 17.2 17.2 17.2
Other ope. (exp)/ Inc. (91.6) (75.5) (71.5) (81.5) Cash & ST Invts 54.1 36.3 54.0 79.0
EBIT 38.6 28.3 36.8 36.7 Other Current Assets 246.4 268.7 275.1 287.0
Net int (exp)/ Inc (33.4) (34.8) (34.2) (34.2) Total Assets 1,084.3 1,085.9 1,099.0 1,116.0
Associates & JV 3.0 5.5 7.5 8.5
Exceptional gain/ (loss) 0.0 0.0 0.0 0.0 ST Debt 125.8 110.0 110.0 110.0
Pretax profit 8.2 (1.0) 10.2 11.0 Other Current Liab 146.0 158.4 162.0 168.6
Tax (0.4) 0.1 (0.6) (0.7) LT Debt 435.0 440.9 440.9 440.9
Minority interest (0.8) (0.5) (0.8) (1.0) Other LT Liab 4.2 4.2 4.2 4.2
Net profit 7.0 (1.4) 8.8 9.4 Shareholders Equity 367.3 365.9 374.6 384.0
Net profit ex-EI 7.0 (1.4) 8.8 9.4 Minority Interest 6.0 6.5 7.3 8.3
Total Cap. & Liab 1,084.3 1,085.9 1,099.0 1,116.0
EBITDA 77.0 66.7 75.3 75.1
Sales Gth (%) (18.0) 11.0 2.8 5.1 Share Capital (m) 267.1 291.9 291.9 291.9
EBITDA Gth (%) 59.8 (13.4) 12.8 (0.2) Net Debt 506.7 514.5 496.9 471.8
EBIT Gth (%) 79.3 (26.7) 30.2 (0.4) Working Capital 28.8 36.6 57.1 87.4
Effective Tax Rate (%) 5.2 6.0 6.0 6.0 Gross Gearing % 152.7 150.6 147.0 143.5


CASH FLOW (RM m) RATES & RATIOS
FY Dec 2010A 2011F 2012F 2013F FY Dec 2010A 2011F 2012F 2013F

Net Profit 7.0 (1.4) 8.8 9.4 Gross Margin (%) 24.4 17.6 17.8 18.5
Dep. & amort 38.4 38.4 38.4 38.4 EBITDA Margin (%) 14.5 11.3 12.4 11.8
Chg. In wkg cap (2.5) (9.9) (2.8) (5.3) EBIT Margin (%) 7.2 4.8 6.1 5.7
Other ope. CF 33.3 (5.0) (6.7) (7.5) Net Profit Margin (%) 1.3 (0.2) 1.4 1.5
Operating CF 76.3 22.2 37.7 35.0 ROAE (%) 2.0 (0.4) 2.4 2.5
Net capex (30.7) (30.0) (20.0) (10.0) ROA (%) 3.8 3.1 4.1 4.1
Chg in LT inv 0.0 0.0 0.0 0.0 ROCE (%) 4.3 3.2 4.2 4.2
Chg in oth assets 0.3 0.0 0.0 0.0 Div Payout Ratio (%) 0.0 0.0 0.0 0.0
Investment CF (30.4) (30.0) (20.0) (10.0) Interest Cover (x) 1.2 0.8 1.1 1.1
Net chg in debt (30.4) (9.9) 0.0 0.0 Debtors Turn (days) 138.4 122.6 127.2 125.8
Chg in other LT liab. 44.0 0.0 0.0 0.0 Creditors Turn (days) 94.4 83.4 87.6 86.0
Oth. Financing CF (43.8) 0.0 0.0 0.0 Inventory Turn (days) 11.2 12.1 12.6 12.6
Financing cash flow (30.2) (9.9) 0.0 0.0 Current Ratio (x) 1.1 1.1 1.2 1.3
Net cash flow 15.8 (17.8) 17.7 25.0 Quick Ratio (x) 1.0 1.1 1.1 1.2
Net Debt/Equity (x) 1.4 1.4 1.3 1.2
Capex to Debt (%) 5.5 5.4 3.6 1.8
N.Cash/(Debt)PS (sen) (189.7) (176.3) (170.2) (161.6)
Opg CFPS (sen) 28.6 7.6 12.9 12.0
Free CFPS (sen) 17.1 (2.7) 6.1 8.6

Sources: Company, Maybank-IB














Tanjung Offshore

3 October 2011 Page 4 of 4




Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in the next 12 months

Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are
only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not
carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear):
Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings
BV = Book Value FV = Fair Value PEG = PE Ratio To Growth
CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio
Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter
CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset
DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity
DPS = Dividend Per Share

NTA = Net Tangible Asset ROSF = Return On Shareholders Funds
EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital
EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year
EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date
EV = Enterprise Value PBT = Profit Before Tax

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