COMPANY UPDATE 18 July 2011

Mermaid Maritime PCL

Limited downside risks; catalysts emerge

OUTPERFORM S$0.34

Upgraded @17/07/11 Target: S$0.49 Offshore & Marine

MMT SP / MMPC.SI

Yeo Zhi Bin +65 6210 8669 zhibin.yeo@cimb.com

Negative triggers dissipate. We believe that the worst could be over with Mermaid
bottoming out in terms of qoq earnings. Due to compelling valuations against BV, visible improvements in its subsea business and multiple catalysts from drilling, we upgrade Mermaid from Neutral to OUTPERFORM. Given higher utilisation rates, we lower our FY11 net loss forecast by 8% and raise our estimate for FY13 by 114%. As we believe that losses could be contained, we raise our target price to S$0.49, based on 0.8x CY11 P/BV (previously S$0.41, based on 0.7x CY11 P/BV, its average since 2009). We see catalysts from sustained improvement in subsea utilisation and contracts for newbuild jack-ups. Visible improvements in subsea business. Utilisation for 2QFY11 has climbed to 54% vs. 28% for 2QFY10. Based on an order book of over US$100m, subsea should achieve above 60% utilisation for 2HFY11. In turn, we project that Mermaid will post its first subsea gross profit in 3QFY11 after five straight quarters of losses. Seadrills recent participation in AOD enhances chances of securing drilling contracts. As over 90% of newbuilds in this cycle are built on speculation, Mermaid stands a better chance against other investors/speculators with Seadrill on board. Mermaid targets to secure contracts for its newbuilds by 1H12. This should significantly catalyse its share price. Subsea fleet value limits downside risks. As it is trading at 0.6x CY11 P/BV, we believe that downside risks are limited and see its share price supported by value in subsea assets. Even if we exclude Mermaids drilling business, RNAV of its subsea fleet alone is S$0.41/share, representing a 21% upside to its current trading price.
Financial summary
FYE Sep Revenue (THB m) EBITDA (THB m) EBITDA margins (%) Pretax profit (THB m) Net profit (THB m) EPS (S cts) EPS growth (%) P/E (x) Core EPS (S cts) Core EPS growth (%) Core P/E (x) Gross DPS (S cts) Dividend yield (%) P/BV (x) ROE (%) Net gearing (%) P/FCFE (x) EV/EBITDA (x) % change in EPS estimates CIMB/Consensus (x) 2009 5,209.9 1,509.6 29.0% 863.1 714.5 5.4 (39.0%) 6.3 5.4 (39.0%) 6.3 0.0 0.0% 0.5 7.4% 10.3% (9.4) 3.9 2010 3,476.4 354.1 10.2% (263.2) (456.1) (2.5) (146.1%) nm (3.4) (163.4%) nm 0.0 0.0% 0.5 (4.0%) 4.5% (5.7) 19.6 2011F 4,755.6 1,027.7 21.6% (470.3) (560.3) (2.9) (17.3%) nm (2.9) 14.6% nm 2.4 6.9% 0.6 (4.5%) 21.4% (3.1) 7.1 (7.6%) 0.93 2012F 5,621.3 1,686.6 30.0% 167.8 87.8 0.5 115.7% 74.9 0.5 115.7% 74.9 0.0 0.0% 0.5 0.7% 12.2% 15.5 3.7 +3.2% 1.02 2013F 5,879.1 2,005.7 34.1% 644.5 544.5 2.8 519.9% 12.1 2.8 519.9% 12.1 0.0 0.0% 0.5 4.5% N/A 7.0 2.3 +114.5% 1.12

Note: Per share data translated into listing currency at current fx spot rates, valuation methodology based on house forex forecasts Source: Company, CIMB Research, Bloomberg

Price chart
0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 J ul-10

Market capitalisation & share price info

1.80 1.60 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00
De c -10 Ma y-11
Me rma id Ma ritime P CL

Volume 10m (R.H.S c a le )

Market cap 12-mth price range 3-mth avg daily volume # of shares (m) Est. free float (%) Conv. secs (m) Conv. price
Source: Company, CIMB Research, Bloomberg

S$267m/US$219m S$0.49/S$0.30 0.3m 785 42.8 None

Share price perf. (%) Relative Absolute Major shareholders Thoresen Thai Agency Thailand Equity Fund

1M 3M 12M 0.5 (12.0) (32.4) 1.5 (13.9) (29.2) % 57.1 15.1

Source: Bloomberg

Please read carefully the important disclosures at the end of this publication.

SINGAPORE

Road blocks cleared

Underperformer on cusp of outperformance. As losses snowball from an overexpanded subsea fleet in a surplus market, Mermaid has underperformed the FSSTI by 20% YTD. The stock was also the top underperformer in our small-mid O&M coverage in 2010 as performance was dragged by disappointing subsea utilisation while an ageing MTR-1 has been unable to secure work since 4QFY09. To worsen matters, plans for tender rig project KM-1 were derailed. Negative triggers dissipate. Nonetheless, we believe that Mermaid has bottomed out in terms of qoq earnings given visible subsea improvements. On the drilling front, Seadrills participation in AOD would enhance chances of contracts for the newbuild jack-ups, in our view. Moreover, clarification and relaxation of the Indonesian cabotage principle has cast off lingering doubts that MTR-2 could have difficulty finding jobs in Indonesia (larger OSVs, subsea and seismic vessels as well as drilling rigs are exempt from the cabotage principle).
Figure 1: Mermaid has underperformed the FSSTI by 25% YTD
1.3 1.2 1.1 1.0 0.9 0.8 0.7 0.6 0.5 03-Jan11 24-Jan11 14-Feb11 07-Mar11 28-Mar11 18-Apr11 09-May - 30-May 11 11 20-Jun11 11-Jul11 FSSTI EZI ASL MMT EZRA SWIB OTML STX OSV

Source: Bloomberg, CIMB Research

Improvements in subsea business

Improving subsea utilisation via competitive bids. YTD, we see visible improvements in utilisation. Utilisation has climbed to 51% for 1Q and 54% for 2Q vs. 28% in 2QFY10. This is despite 2Q being the worst-performing quarter due to the monsoon season. Improvements mainly stem from a shift in strategic bidding, which has led the subsea arm to tender much competitively than before. Previously, Mermaid tendered at rates which required it to cover both fixed operating cash costs (crew and vessel maintenance expenses make up around 65% of total operating costs) as well as indirect costs (admin overheads and depreciation). This rendered vessels uncompetitive and worsened subsea fleet utilisation in a surplus environment. To plug losses, tendered rates sometimes can barely cover operating costs. However, it is better to employ the vessels so that fixed costs can at least be partially covered.

[ 2 ]

Figure 2: Regardless of whether the subsea vessels are in operations or standby, Mermaid has to cough up high operating cash costs such as crew and vessel expenses, which make up around 65% of total operating costs 3-year subsea business strategy Vessels FY10 operating cost breakdown

Depreciation 19%

Others 10%

Charter hire & equip rental 5% Vessel ex penses 21%

Source: Company, CIMB Research

Crew & subcontractor costs 45%

Subsea commercial base to be re-located to Singapore. To strengthen its presence and marketing capabilities, the subsea arms commercial base will be relocated from Thailand to Singapore where many of the specialist subsea players, such as Hallin Marine and Furgo-TSM, as well as EPIC contractors, such as Subsea 7, Mcdermott and Technip, have regional offices.
Figure 3: Singapore is a key base for pure subsea specialists
Company Bibby Offshore Furgo-TSM Vessel fleet 3 x subsea construction support vessels 4 x subsea construction support vessels Description Aberdeen based outfit founded in 2003 Regional offices in Singapore & Trinidad Perth based outfit founded in 2006 Acquired by global seismic leader, Fugro in 2011 Regional offices in Singapore, Labuan and Aberdeen Singapore based outfit founded in 1998 Acquired by NYSE-listed Superior Energy in 2010 Headquartered in Aberdeen with more than 25 years of track record Regional offices in Singapore & Australia Listed on the SGX in 2010 Swiber's subsea arm ASX-listed company formed in 2003 Provides a range of activities from offshore, subsea engineering, hydrographic surveying & specialist fabrication Regional offices in Singapore, U.S & U.K

Hallin Marine ISS Kreuz Neptune Marine services

6 x subsea construction support vessels 2 x subsea construction support vessels 1 x subsea construction support vessels 3 x subsea construction support vessels

Source: Various companies, CIMB Research

Initiatives to expand services and reduce overhead costs. To expand its revenue base, Mermaid aims to value add by deepening its subsea engineering services. The company also aims to reduce overhead costs by sharing admin functions with its parent company Thoresen Thai. Nonetheless, we are not factoring in such a scenario into our earnings model until we see clearer signs of margin improvements. Improvement in utilisation to be sustained. The subsea division has bagged orders of over US$100m (to be recognised in 2HFY11-FY12). Based on the contracted work, management guides that utilisation for the subsea fleet will improve for the remainder of FY11 and achieve above 60% utilisation. We forecast Mermaid to achieve 67% utilisation rates for 3QFY11 and 62% for 4QFY11. In turn, we estimate that the subsea division will break even at the gross profit level after five consecutive quarters of gross losses.

[ 3 ]

Figure 4: On the back of improvement in subsea utilisation, we project that subsea will be able to record its first gross profit since 2QFY10
(THBm) 1,200 1,000 800 600 400 200 (200) 1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11F 4QFY11F 46% 57% 51% 54% 67% Subsea rev enue Subsea gross profits Subsea utilisation (RHS) 80% 70% 62% 60% 50% 40% 28% 27% 30% 20% 10% 0%

Source: Company, CIMB Research

Multiple catalysts from drilling

Seadrills participation enhances Asia Offshore Drillings (AOD) chances of securing drilling contracts. Currently the worlds second-largest driller in terms of fleet (behind U.S driller Transocean), Seadrill has a versatile fleet of 46 drillers (with another 14 under construction), comprising drillships, jack-ups, semi-subs and tender rigs. It has 25 rigs operating in Asia (mostly in South East Asia). With Seadrill as equal shareholders in AOD (33.75%), Mermaid would be able to capitalise on Seadrills global network of clients. Furthermore, oil majors and operators would be comforted with Seadrill being responsible for the commercial management and operations of AODs rigs. As over 90% of newbuilds in this cycle are built on speculation, Mermaid stands a better chance against other investors/speculators, such as Standard Drilling (ordered seven jack-ups), with Seadrill on board. Target to secure contracts for newbuilds by 1H12. Marketing has commenced for the jack-ups under construction and Mermaid targets to secure contracts by 1H12. We see these events as significant catalysts as the contracts would effectively secure the remaining 80% financing (20% paid) through bank borrowings and bonds.
Figure 5: Seadrills drilling fleet
Rig type Semi-submersibles Drillships Jack-ups Tender rigs
Source: Company, CIMB Research

Europe 3 1 1 0

South America 5 1 3 0

Africa 0 2 0 3

Operating status/location Middle East South-East Asia/China 0 2 0 0 2 10 0 13

Total Under construction 2 3 6 3 12 7 22 19

Expecting formal contract extension for MTR-2 in the near term. MTR-2 is working on a contract roll-over after its previous contract with Chevron Indonesia ended in Mar 2011. Pending BP Migass (Indonesias oil and gas regulator) approval, we expect to hear of an extension for another 270 days in the near term. Upside from MTR-1? MTR-1 is awaiting a decision by Chevron Indonesia for it to be employed as an accommodation barge. Any contracts secured would provide upside to our earnings estimates as we have not incorporated any contributions from MTR-1.
Figure 6: We see positive newsflow in the near mid-term, which could catalyse Mermaids share price
Date Aug 11 Aug 11 Sep 11 1H12 Potential positive newsflow Contract extension with Chevron Indonesia for MTR-2 by 270 days Subsea to achieve a small operating profit after 5 straight quarters of losses, affirming improvement in subsea utilisation Exercise of last in-the-money jack-up options with Keppel Drilling contracts secured for newbuild jack-ups. Such should ensure debt financing and the remaining 80% payment for the jack-ups upon delivery. We view this event as a significant re-rating catalyst.

Source: CIMB Research

[ 4 ]

Earnings upgrade
Changes to earnings estimates and model assumptions. Incorporating higher subsea utilisation, we narrow our FY11 loss to THB560m (from THB606m loss) and hike our FY13 earnings to THB545m (from THB254m). We make no significant changes to our FY12 earnings estimate as higher utilisation is offset by higher tax assumptions. Although we project Mermaid to book a marginal net loss of THB31m for 3QFY11, we believe that qoq earnings have bottomed out. We expect Mermaid to break even at the operating level in 3QFY11, marking a reversal after five straight quarters of operating losses.
Figure 7: Earnings upgrades and assumption changes
New 4,756 5.6% (275) (5.8%) (560) (11.8%) (0.71) 58.5% 39,520 46.4% 46,578 FY11F Old 4,353 4.5% (305) (7.0%) (606) (13.9%) (0.77) 52.5% 35,109 46.4% 42,800 % change +9% +1.1% pts (10%) +1.2% pts (8%) +2.1% pts (8%) 6.0% pts +13% +0.1% pts +9% New 5,621 18.2% 371 6.6% 88 1.6% 0.11 66.3% 47,203 49.0% 46,550 FY12F Old 5,005 17.5% 278 5.6% 85 1.7% 0.11 56.3% 40,352 49.0% 44,100 % change +12% +0.7% pts +33% +1.0% pts +3% -0.1% pts +3% +10.0% pts +17% 0.0% +6% New 5,879 23.6% 747 12.7% 545 9.3% 0.69 70.0% 52,588 36.8% 34,913 FY13F Old 5,211 17.1% 267 5.1% 254 4.9% 0.32 56.3% 43,289 36.8% 33,075 % change +13% +6.5% pts +180% +7.6% pts +114% +4.4% pts +114% +13.8% pts +21% +0.0% pts +6%

Revenue (THBm) Gross margins (%) EBIT (THBm) EBIT margins (%) Earnings (THBm) Net margins (%) EPS (THB) Subsea utilisation (%) Subsea dayrates (US$) Tender rigs utilisation (%) Tender rigs dayrates (US$)
Source: CIMB Research

Figure 8: Expect qoq earnings to bottom out; Mermaid to break even at the operating level for 3QFY11
(THBm) 1,500 1,000 500 (100) 1QFY10 (500)
Source: Company, CIMB Research

Rev enue

Earnings (RHS)

EBIT (RHS)

(THBm) 200 100 -

2QFY10

3QFY10

4QFY10

1QFY11

2QFY11

3QFY11F

4QFY11F

(200) (300)

Figure 9: Revenue and earnings forecasts

(THB'm) 7,000 6,000 5,000 4,000 3,000 2,000 1,000 FY07
Source: Company, CIMB Research

Rev enue 1,156 541 714

Earnings (RHS)

(THB'm) 1,500 1,000 545 88 500 -

(456) (560)

(500) (1,000)

FY08

FY09

FY10F

FY11F

FY12F

FY13F

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Figure 10: Revenue segmental breakdown

THBm, FYE Sep Subsea services Drilling services Survey services Training/others Total revenue
Source: Company, CIMB Research

2007 2,877 1,240 14 4,131

2008 3,927 1,249 85 24 5,285

2009 2,782 2,213 179 36 5,210

2010 2,077 1,076 300 22 3,476

2011F 3,415 1,021 320 4,756

2012F 4,214 1,039 368 5,621

2013F 4,695 779 405 5,879

Figure 11: Key drivers Subsea utilisation: Stronger-than-expected recovery in subsea sector could drive utilisation to FY07-08 levels
100% 80% 60% 40% 20% 0% FY07 FY08 FY09 FY10 FY11F FY12F FY13F 77% 59% 53% 40% 66% 86% 70%

Tender rig utilisation: Factor in downtime for MTR-2 in FY13; assume no contributions from MTR-1
MTR-1 100% 80% 60% 40% 20% 0% FY07 FY08 FY09 FY10 FY11F FY12F FY13F 0% 0% 0% 0% 53% 41% 97% 79% 95% 95% MTR-2 93% 98% 74%

100%

Source: Company, CIMB Research

Subsea fleet average day rates: Not expecting a strong recovery in day rates as surplus is deemed worse than AHTS and PSV segments
(US$/d) 60,000 44,012 40,000

Tender rig average day rates: Expecting MTR-2s rates to hover at US$90,000/d
(US$/d)

51,377 39,520 31,361 26,544

47,203

52,588

100,000 80,000 60,000 40,000 20,000 51,678 47,691

87,315

45,288 46,578 46,550

34,913

20,000

0 FY07 FY08 FY09 FY10 FY11F FY12F FY13F

0 FY07 FY08 FY09 FY10 FY11F FY12F FY13F

* Day rates is taken as revenue- per calendar-vessel-day Source: Company, CIMB Research

Subsea quarterly gross margins

20% 10% 0%
1QFY10 2QFY10 3QFY10 4QFY10 1QFY11 2QFY11 3QFY11F 4QFY11F

Tender rig quarterly gross margins

25%
12% 6%

18%

20% 17% 18%

20% 15% 10% 5% 0%

24%

20% 22% 11%

20%

-10% -20% -30% -40% -31%

-2%

-6% -13%

-36%

Source: Company, CIMB Research

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11 3Q FY 11 F 4Q FY 11 F

10

10

10

10

11 1Q FY

1Q FY

2Q FY

3Q FY

4Q FY

2Q FY

Risks
Downtime risks. Due to its high operating leverage, it is essential that Mermaid secures utilisation for its assets to cover operating expenses for its assets. Inherent operational risks such as adverse weather conditions, accidents as well as mandatory dry-docking of vessels and the inability to secure work could lead to lower-thanexpected utilisation for Mermaids vessels. Risks to book value. Continued large losses and impairments on assets could erode book value and thus warrant deep discounts to book value. Following a better-thanexpected 2Q, we believe that losses should be contained and Mermaid could return to profitability in FY12. In addition, with the subsea sector at the tail end of the industry downcycle, writedowns of asset values are unlikely, in our view.

Valuation and recommendation

Value in subsea fleet limits downside risks. As it is trading at 0.6x CY11 P/BV, we believe that downside risks are limited and see its share price as being supported by value in the subsea fleet. Even if we conservatively assume that Mermaids aged tender rigs (S$0.06/share) are unable to command any salvage value and that AOD is unable to secure any project financing for the newbuilds (hence writing off the entire investment of US$63.8m or around S$0.10/share as the 20% downpayment would be forfeited by the yard), Mermaids value is still well-supported by its subsea fleet. The RNAV of Mermaids subsea fleet is at least S$0.41/share, representing a 21% upside to the current trading price. Moreover, following valuation assessments by shipbrokers, management believes that the market price for its entire subsea fleet could be higher than book value. Hence, investors could actually profit if Mermaid were to break up and sell its vessels in the market today.
Figure 12: Net book value of Mermaids subsea fleet could be worth at least S$0.41/share
Vessel name Mermaid Performer M.V Barracuda Mermaid Challenger Mermaid Sapphire Mermaid Commander Mermaid Siam Mermaid Asiana Mermaid Endurer Type Utility vessel Utility vessel Utility vessel ROV support vessel Dive support vessel Dive support vessel Dive support vessel Dive support vessel Year Purchase Vessel age built year (yr) 1982 2006 29 1982 2010 29 2008 2008 3 2009 2009 2 1987 2005 24 2002 2010 9 2010 2010 1 2010 2010 1 Fleet book value as at FY10 Add tools & equip Less depreciation charge Estimated fleet book value as at 1HFY11 Less Net debt Net asset value for fleet as at 1HFY11 No. of shares (m) RNAV/share (THB) RNAV/share (S$) Net book asset (THB'm) 32 34 562 1,108 586 940 2,438 3,181 8,880 1,653 503 10,029 2,280 7,749 785 10 0.41

Source: Company, CIMB Research

Upgrade Mermaid from Neutral to OUTPERFORM. As a result of 1) compelling valuations against BV, 2) visible improvements in its subsea business, as well as 3) multiple catalysts from drilling, we have turned positive on Mermaid. Incorporating higher utilisation rates, we narrow our FY11 net loss forecast by 8% and raise our earnings estimate for FY13 by 114%. As we believe that losses could be contained, we narrow our discount to BV to 20%, raising our target price to S$0.49, based on 0.8x CY11 P/BV (previously S$0.41, based on 0.7x CY11 P/BV, its average since 2009). We see catalysts from continued improvement in subsea utilisation and contracts for newbuild jack-ups.

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Figure 13: Mermaids P/BV

6.0 5.0 4.0 3.0 2.0 1.0 Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Average: 1.3x

Source: Bloomberg, CIMB Research

Figure 14: Sector comparisons

Bloomberg ticker Singapore offshore Mermaid Ezion Ezra Swiber Simple average Malaysia offshore Perisai Kencana SapuraCrest Simple average MMT SP EZI SP EZRA SP SWIB SP Price (Local) 0.34 0.67 1.32 0.68 Target price Mkt cap (Local) (US$ m) 0.49 1.22 1.80 0.98 219 392 936 281 Core P/E (x) CY2011 CY2012 nm 9.0 15.4 13.3 12.6 12.5 21.1 19.6 17.7 32.4 6.1 9.5 8.6 8.1 7.4 17.1 17.9 14.1 3-yr EPS CAGR (%) 194.0 37.5 17.8 31.2 28.8 95.0 22.7 14.4 44.0 P/BV (x) CY2011 0.6 1.5 1.2 0.8 1.0 1.9 16.0 5.9 7.9 ROE (%) CY2011 (3.2) 23.0 8.6 7.9 9.1 16.7 84.6 31.2 44.2 Div yield (%) CY2011 5.2 0.1 1.0 0.0 1.6 0.0 1.0 2.0 1.0

Recom. O O O O

PPT MK KEPB MK SCRES MK

O O O

0.81 2.99 4.51

1.60 3.55 5.12

183 1,828 1,915

O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell Source: Company, CIMB Research

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Financial tables
PROFIT & LOSS (THB m, FYE Sep) Revenue Operating expenses EBITDA Depreciation & amortisation EBIT Net interest & invt income Associates contribution Exceptional items Others Pretax profit Tax Minority interests Net profit Adj. wt. shares (m) Unadj. year-end shares (m) BALANCE SHEET (THB m, end Sep) Fixed assets Intangible assets Other long-term assets Total non-current assets Cash and equivalents Stocks Trade debtors Other current assets Total current assets Trade creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders funds Minority interests NTA/share (S$) CASH FLOW (THB m, FYE Sep) Pretax profit Depreciation & noncash adj. Working capital changes Cash tax paid Others Cash flow from operations Capex Net investments & sale of FA Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends paid Cash interest & others Cash flow from financing Change in cash Change in net cash/(debt) Ending net cash/(debt)
Source: Company, CIMB Research, Bloomberg

KEY RATIOS 2009 5,210 (3,700) 1,510 (562) 948 (67) (17) 0 0 863 (116) (33) 714 541 541 2010 3,476 (3,122) 354 (718) (364) (89) 20 171 0 (263) (193) 0 (456) 749 785 2011F 4,756 (3,728) 1,028 (1,308) (280) (185) (5) 0 0 (470) (90) 0 (560) 785 785 2012F 5,621 (3,935) 1,687 (1,321) 366 (192) (6) 0 0 168 (80) 0 88 785 785 2013F 5,879 (3,873) 2,006 (1,264) 742 (189) 92 0 0 645 (100) 0 545 785 785 (FYE Sep) Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) Effective tax rates (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) 2009 (1.4) (10.9) 16.6 13.7 11.3 13.4 0.0 87.5 9.1 17.9 2010 (33.3) (76.5) (7.6) (13.1) (3.8) N/A N/A 86.8 13.2 16.1 2011F 36.8 190.3 (9.9) (11.8) (1.5) N/A N/A 66.2 10.3 14.7 2012F 18.2 64.1 3.0 1.6 1.9 47.7 0.0 78.5 9.2 18.5 2013F 4.6 18.9 11.0 9.3 3.8 15.5 0.0 83.1 9.8 19.6

KEY DRIVERS 2009 10,301 282 864 11,447 1,451 113 1,037 508 3,108 184 469 1,135 1,788 2,077 33 2,111 9,997 659 0.73 2010 11,985 349 272 12,607 3,743 139 616 735 5,233 124 697 382 1,202 3,628 27 3,655 12,892 90 0.65 2011F 10,877 349 2,168 13,394 1,159 130 1,107 802 3,198 261 577 614 1,451 3,148 27 3,175 11,877 90 0.60 2012F 9,756 349 2,162 12,267 1,582 154 1,309 838 3,883 308 442 709 1,459 2,610 27 2,637 11,964 90 0.60 2013F 8,692 349 2,254 11,295 2,521 161 1,369 848 4,899 322 333 737 1,393 2,176 27 2,203 12,509 90 0.63 (FYE Sep) Average utilisation rate (%) Gross Margin (%) Av day rates-Tender rigs (US$'000) Av day rates - Subsea (US$'000) 2010 43.5% 6.6% 45.3 26.5 2011F 56.1% 5.6% 46.6 39.5 2012F 62.8% 18.2% 46.6 47.2 2013F 63.4% 23.6% 34.9 52.6

12M - FORWARD FD CORE P/E (X) 2009 863 562 319 (109) 224 1,859 (3,592) (492) 1,140 (2,944) 602 0 0 271 873 (212) (814) (1,096) 2010 (263) 718 397 (111) (288) 454 (6,028) 2,153 0 (3,875) 2,312 3,591 0 534 6,438 3,017 704 (582) 2011F (470) 1,308 (181) (90) 5 572 (200) (1,901) 0 (2,101) (600) 0 (455) 0 (1,055) (2,584) (1,984) (2,566) 2012F 168 1,321 (119) (80) 6 1,296 (200) 0 0 (200) (673) 0 0 0 (673) 424 1,096 (1,470) 2013F 645 1,264 (35) (100) (92) 1,681 (200) 0 0 (200) (543) 0 0 0 (543) 939 1,481 12
32.0 22.0 12.0 2.0 -8.0 -18.0 -28.0 -38.0 -48.0 Jul-08

Nov-08

Mar-09

Jul-09

Nov-09

Mar-10

Jul-10

Nov-10

Mar-11

Jul-11

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APPENDICES

[ 10 ]

Appendix 1: Mermaids milestones

Figure 15: Mermaids milestones
Date 1983 2003 2005 2006 2007 2008 2009 2010 Key milestones Established in Thailand Purchased Mermaid Supporter subsea vessel Expanded subsea business and purchased Mermaid Responder & Mermaid Commander vessels Incorporated Mermaid Drilling Ltd and commenced offshore drilling services with purchase of tender rigs MTR-1 and MTR-2 Purchased Mermaid Performer Converted to a public company and listed on the Singapore Stock Exchange. IPO raised S$218m. Ordered newbuild Mermaid Sapphire Acquired Seascape Surveys for access to hydro-graphic & positioning services Acquired Mermaid Endurer under construction Took delivery of Mermaid Sapphire and purchased 80% of Mermaid Asiana under construction Raised S$156m from rights issue Acquired Subtech to expand subsea services in the Middle East and Persian Gulf. Disposed Mermaid Responder & purchased Mermaid Siam Took delivery of Mermaid Endurer and Mermaid Asiana, bringing total subsea fleet to 8 vessels Disposed investments in KM-1 tender rig projet as well as investment in Allied Marine & Equipment Acquired 49% equity stake in Asia Offshore Drilling with 2 high spec. jack-ups under construction

Source: Company, CIMB Research

Appendix 2: Mermaids fleet

Mermaid has a fleet of eight subsea vessels and two tender-rig barges. Mermaids subsea fleet can be categorised into 1) utility vessels, 2) ROV support vessels, and 3) dive support vessels. The average age of the tender rig fleet is 31.5 years while the average of the subsea fleet is 12.3 years.
Figure 16: Tender rig fleet
Vessel name MTR-1 Specifications ABS classified Water depth rating: 100m Drilling depth rating: 6,100m Accommodation: 112 persons BV classified Water depth rating: 100m Drilling depth rating: 5,943m Accommodation: 115 persons Year built 1978 Last SPS 2006 Ownership 95% Current status Awaiting decision for her to be employed as an accommodation barge by Chevron Indonesia

MTR-2

1981

2008

95%

Working on contract roll-over for Chevron Indonesia. Awaiting contract extension for 270 days under new and improved terms also with Chevron Indonesia

Source: Company, CIMB Research

[ 11 ]

Figure 17: Subsea fleet

Vessel type Utility vessel Purpose Supply vessels used to support near-shore production operations; provide storage space; emergency standby & transporting personnel between platforms. Vessel name Mermaid Performer Specifications Survey/ROV/Dive support vessel Safety & standby vessel Slow-speed maneuvering capability Omni-directional bow thruster & accommodation for 34 personnel Track record of ROV pipeline inspection projects Built-in surface diving system ROV & survey support Safety & standby vessel Slow-speed maneuvering capability Omni-directional bow thruster & accommodation for 30 personnel Track record for platform & FPSO inspection DP1 multi-purpose support vessel ROV & support vessel 70-tonne bollard-pull capacity & accommodation for 38 personnel DP2 ROV support vessel Equipped with a deepwater worldclass ROV Air diving capability 23-tonne crane & accommodation for 60 personnel Year built 1982 Ownership 100% Current status Currently deployed in South East Asia

Mermaid Supporter

1982

100%

Currently deployed in South East Asia

Mermaid Challenger

2008

100%

Currently deployed in South East Asia

ROV support vessel

Accommodate & operate remotely operated underwater vehicles (ROVs), which are unoccupied, highly maneuverable robots operated by a person aboard a vessel Used as floating base for commercial diving projects Usually includes a Dynamic Positioning (DP) system to maintain the ships position over a dive site.

Mermaid Sapphire

2009

100%

Currently deployed in South China Sea

Dive support vessel

Mermaid Commander

DP2 construction support 16-man twin bell saturation diving support system 60-tonne crane & accommodation for 87 personnel Worked in offshore Brazil and the North Sea DP2 construction support 10-man single bell saturation diving support system 70-tonne crane & accommodation for 135 personnel Worked in the Middle East DP2 dive support & light construction vessel 12-man single bell saturation diving support system 100-tonne heave compensated crane & accommodation for 100 personnel DP2 dive support & light construction vessel - comfort class 18-man single bell saturation diving support system 100-tonne heave compensated crane & accommodation for 86 personnel Designed for North Sea and Gulf of Mexico operations

1987

100%

Currently deployed in South East Asia

Team Siam Houses saturation diving system which allows professional divers to live and work at depths greater than 160ft for days or weeks at a time Other support systems include ROVs & heavy lifting equipment Mermaid Asiana

2002

100%

Currently deployed in the Middle East

2010

100%

Currently deployed in Indian Ocean

Mermaid Endurer

2010

100%

Bareboat chartered in the North Sea

Source: Company, CIMB Research

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Appendix 3: Asia Offshore Drilling in broad strokes

Investment in AOD is in-the-money. Set up in Oct 2010, AOD is a pure-play, leveraged jack-up owner and operator in which both Mermaid and Seadrill are equal shareholders, each with a 33.75% stake. AOD ordered two high spec jack-ups (Mod V-B class for about US$177m each) from Keppel in Dec 2010. Following its second placement in Jul 2011 (where Seadrill came on board), it exercised the first of two options for another jack-up worth US$184m. The remaining option expires in end-Sep 2011, with contract costs of US$187m. AOD has raised sufficient capital to pay the initial 20% downpayment. With estimated replacement costs upwards of US$195m, the jack-ups are firmly in the money.
Figure 18: Corporate structure of Asia Offshore Drilling Limited

Mermaid
33.75%

Seadrill
33.75%

Other investors
Technical, commercial & corporate management agreements

Asia Offshore Drilling Ltd. Total funding: US$180m

Rig 1 US$177m Delivery: 4Q12

Source: Company, CIMB Research

Rig 2 US$177m Delivery: 2Q13

Rig 3 US$184m Delivery: 2Q13

Unexercised option: Rig 4 US$187m Delivery: 3Q13

Figure 19: Asia Offshore Drilling (AOD) milestones

Date Oct 2010 Dec 2010 Jul 2011 Jul 2011 Jul 2011 Dec 2012 Apr 2013 3Q13 Key milestones US$100m-private placement successfully completed. Mermaid allocated 49% in AOD (for US$49m cash) Signed construction contracts with Keppel Corp for 2 jack-up rigs and 2 options Second private placement completed, raising US$80m Mermaid & Seadrill becomes equal shareholders, each with a 33.75% stake Exercise of third jack-up rig List on Oslo Axess Expected delivery of first jack-up rig Expected delivery of second jack-up rig Expected delivery of third jack-up rig

Source: Company, CIMB Research

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Appendix 4: Subsea fleet dynamics

Still over-supplied though demand starting to pick up. Despite excess tonnage, the subsea support fleet continues to grow in 2011 as record newbuilds are delivered into the market. This compares unfavourably with the over-supplied AHTS segment, which, at least, has seen fleets plateau as newbuild deliveries slow down. The oversupply situation appears to be worse off for the dive support vessel (DSV) segment, which is expected to see record deliveries in 2011. This is also the market which Mermaid primarily competes in. One mitigating factor is that the average age of the DSV segment is the oldest, with more than 60% of DSVs above 25 years old. Vessel retirements can return the DSV market to a balanced state. On the demand side, subsea contracting is starting to pick up and absorb overcapacity. ODS-Petrodata reports that 102 contracts, including subsea installation and Engineering, Procurement, Installation and Construction (EPIC), were awarded in 1H11 vs. 80 of such contracts in 1H10. This represents a 27.5% increase. Notably, both Asia Pacific and Northwest Europe have seen healthy doses of subsea contracting activities. With increased uptake and operators seeking to shorten the discovery to first production time frame, we could perhaps see a stronger recovery by end-2012 or 2013.
Figure 20: Subsea contracting tenders for 2H11-1H12 in South East Asia; awards to be known in 2H11
Client/operator BP Chevron ConocoPhillips ConocoPhillips CTOC Lam Son JOC Pearl Oil Pearl Oil Petronas Carigali Santos Shell Prod unit / Field Lan Tay/Lan Do Bawal Bawal Cakerawala Thang Long/Dong Do Ruby Ruby Poleng Wortel E11 Hub Integrated Gas Project Country Vietnam Thailand Indonesia Indonesia Joint Development Vietnam Indonesia Indonesia Indonesia Indonesia Malaysia Description Pipelay for flowline & umbilical installation Platform & pipeline installation Subsea export pipelay Subsea facilities package Transport & installation (T&I) for Bumi-B and Cakerawala-D flowlines T&I Wellhead platform & pipelines T&I platforms & bridge Pipelay (Trunkline and inter-platform flowline) T&I gas processing equipment T&I for flowline and wellhead platform T&I and support work Contract period 1H12 1Q12 - 4Q12 4Q11 - 1Q12 2H11 1H12 2Q12 - 2Q13 4Q11 - 1H12 1H12 3Q11 3Q11 1Q12

Source: ODS-Petrodata, CIMB Research

Figure 21: ROV support vessels: Clarksons records that there are currently 31 ROV support vessels, of which another 4 or 13% of fleet is expected to be delivered to market in 2011-12
(Units) 6 5 4 3 2 1 0 1972 1974 1979 1981 1982 1986 1996 1999 2001 2002 2005 2007 2008 2009 2010 2011 2012 Vessels deliv ered Vessels on order Fleet (RHS) (Units) 40 35 30 25 20 15 10 5 0

Source: Clarksons, CIMB Research

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Figure 22: Multi-support vessels (MSVs): Clarksons records that there are currently 201 MSVs, of which another 39 or 19% of fleet is expected to be delivered to market in 2011-12
(Units) 30 25 20 15 10 5 0
19 6 19 3 6 19 5 67 19 69 19 7 19 2 75 19 7 19 6 77 19 7 19 8 7 19 9 80 19 81 19 82 19 8 19 3 8 19 4 8 19 5 8 19 6 8 19 7 8 19 9 90 19 91 19 9 19 4 9 19 6 9 19 7 9 19 8 9 20 9 00 20 01 20 02 20 0 20 3 04 20 0 20 5 0 20 6 07 20 0 20 8 09 20 1 20 0 1 20 1 1 20 2 13
Source: Clarksons, CIMB Research

Vessels deliv ered

Vessels on order

Fleet (RHS)

(Units) 300 250 200 150 100 50 0

Figure 23: Dive support vessels (DSVs): Clarksons records that there are currently 89 DSVs, of which another 39 or 15% of fleet is expected to be delivered to market in 2011-12
(Units) 16 14 12 10 8 6 4 2 0
19 56 19 59 19 61 19 6 19 4 65 19 6 19 7 68 19 71 19 72 19 7 19 4 75 19 7 19 6 77 19 7 19 8 79 19 80 19 81 19 8 19 2 83 19 84 19 85 19 86 19 8 19 7 88 19 8 19 9 91 19 9 19 6 97 19 9 20 8 01 20 0 20 4 05 20 06 20 07 20 08 20 09 20 1 20 0 11 20 12
Source: Clarksons, CIMB Research

Vessels deliv ered

Vessels on order

Fleet (RHS)

(Units) 120 100 80 60 40 20 0

Figure 24: Subsea support fleet age profile ROV support vessels: ROV support segment is relatively healthy with moderate deliveries
>25 y rs 23%

Multi-support vessels: With a youthful fleet and unabated deliveries, MSV segment looks precarious
>25 y rs 16-25 y rs 6% 21%

16-25 y rs 13%

5-15 y rs 19%

< 5 y rs 45%

5-15 y rs 27%

< 5 y rs 46%

Source: Clarksons, CIMB Research

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DSV: >60% of fleet is above 25 yrs old. Though over-supplied, DSV segment could also see fastest recovery
< 5 y rs 19% 5-15 y rs 11%

>25 y rs 61%
Source: Clarksons, CIMB Research

16-25 y rs 9%

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RECOMMENDATION FRAMEWORK #1* STOCK RECOMMENDATIONS

OUTPERFORM: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months. NEUTRAL: The stock's total return is expected to be within +/-5% of a relevant benchmark's total return. UNDERPERFORM: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months. TRADING BUY: The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 3 months. TRADING SELL: The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 3 months.

SECTOR RECOMMENDATIONS
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index over the next 3 months.

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand and Jakarta Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

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RECOMMENDATION FRAMEWORK #2 ** STOCK RECOMMENDATIONS

OUTPERFORM: Expected positive total returns of 15% or more over the next 12 months. NEUTRAL: Expected total returns of between -15% and +15% over the next 12 months.

SECTOR RECOMMENDATIONS
OVERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, has either (i) an equal number of stocks that are expected to have total returns of +15% (or better) or -15% (or worse), or (ii) stocks that are predominantly expected to have total returns that will range from +15% to -15%; both over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 12 months. TRADING BUY: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of +15% or better over the next 3 months. TRADING SELL: The industry, as defined by the analyst's coverage universe, has a high number of stocks that are expected to have total returns of -15% or worse over the next 3 months.

UNDERPERFORM: Expected negative total returns of 15% or more over the next 12 months. TRADING BUY: Expected positive total returns of 15% or more over the next 3 months. TRADING SELL: Expected negative total returns of 15% or more over the next 3 months.

** This framework only applies to stocks listed on the Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

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