Ezion Holdings

09 July 2014 Asia Pacific Equity Research Capital Goods

Ezion Holdings

(EZHL.SI) Rating UNDERPERFORM* Price (07 Jul 14, S$) 2.10 INITIATION

Target price (S$) 1.80¹ Upside/downside (%) -14.3 Mkt cap (S$ mn) 2,759 (US$2,214 mn) A service rig is not a liftboat Enterprise value (US$ mn) 3,263 Number of shares (mn) 1,313.83 ■ We initiate coverage of Ezion with an UNDERPERFORM rating and a Free float (%) 77.0 target price of S$1.80. While Ezion has typically been seen as a play on the 52-week price range 2.43–1.80 ADTO - 6M (US$ mn) 10.6 underpenetrated liftboat market, we believe the market is under-estimating

*Stock ratings are relative to the coverage universe in each the risks of a shift in its portfolio towards service rigs. analyst's or each team's respective sector. ¹Target price is for 12 months. ■ A service rig is not a liftboat. Service rigs are old jackups converted into

Research Analysts other uses including accommodation, or that continue to be used as drilling Gerald Wong, CFA rigs. With an acceleration in contract awards since 2012, Ezion's fleet of 12 65 6212 3037 service rigs in operation exceeded its fleet of five liftboats in January 2014. [email protected] Based on our estimates, the average age of Ezion's service rigs is 33 years, the second oldest globally. As the global jackup fleet is expected to grow by 30% with a surge in newbuild deliveries, we expect the rig replacement cycle to drive downside pressure on dayrates and utilisation rates of older assets. ■ Greater competition expected in liftboat market. We believe Ezion's strength lies in the liftboat market, where our proprietary liftboat model indicates a potential for the fleet in Asia Pacific to grow by close to 80 units. However, we expect significant new competition to emerge due to the low barriers to entry, and our channel checks indicate that both global liftboat operators and local players are expanding their fleet in the region. ■ Valuation at premium to peers. Our target price of S$1.80 is derived from a SOTP valuing Ezion's service rigs using a DCF with a useful life of five years. While Ezion's P/E is at a discount to peers, we believe this is justified as close to 40% of its 2015 earnings are from service rigs that will not be recurring beyond 2018. On 2015 EV/EBITDA of 7.1x, Ezion is trading at a premium to the sector average of 6.5x despite its fleet of older assets.

Share price performance Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Price (LHS) Rebased Rel (RHS) Revenue (US$ mn) 281.9 451.6 627.1 653.0 4 400 EBITDA (US$ mn) 184.3 309.4 454.5 492.4 3 300 EBIT (US$ mn) 138.9 211.0 318.9 339.2 2 200 Net profit (US$ mn) 160.4 201.1 304.3 322.9 1 100 EPS (CS adj.) (US$) 0.16 0.16 0.23 0.24 0 0 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Change from previous EPS (%) n.a. Consensus EPS (US$) n.a. 0.17 0.22 0.25 The price relative chart measures performance against the EPS growth (%) 106.0 -2.0 42.7 4.9 FTSE STRAITS TIMES IDX which closed at 3291.57 on P/E (x) 10.3 10.5 7.4 7.0 07/07/14 On 07/07/14 the spot exchange rate was S$1.25/US$1 Dividend yield (%) 0.0 0.0 0.0 0.0 EV/EBITDA (x) 17.0 10.5 7.1 6.3 Performance over 1M 3M 12M P/B (x) 2.5 1.9 1.6 1.3 Absolute (%) -3.2 — 12.0 — ROE (%) 23.7 20.6 23.5 20.2

Relative (%) -3.0 -2.5 7.7 —

Net debt/equity (%) 115.0 91.4 69.8 49.3 Source: Company data, Thomson Reuters, Credit Suisse estimates.

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION® Client-Driven Solutions, Insights, and Access

09 July 2014 Focus charts

Figure 1: While Ezion has been seen by the market as a Figure 2: Ezion has the second oldest fleet of jackup/ liftboat play, its fleet of service rigs has grown rapidly service rigs globally, with an average age of 33 years 40 40.0 40 35 35.0 35 30 30.0 30 25 25.0 25 20 20 20 20.0 20 16 15 15.0 15 10.0 10 10 12 4 13 14 5.0 5 5 1 9 3 3 5 5 0.0 0 0 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Liftboat Service rigs Average age (Yrs) - LHS No. of jackups - RHS

Source: Company data, Credit Suisse estimates Source: IHS-Petrodata, Credit Suisse estimates

Figure 3: Surge in newbuild jackup deliveries in 2014-16 Figure 4: We expect growing competition in liftboat likely to drive downward pressure to utilisation rates and market with bulk of supply additions to be in Asia Pacific dayrates of older assets 70 14 63 13 60 12

50 47 10 41 41 40 8 30 6 6 30 6 24 23 5 20 16 17 4 12 14 9 10 10 2 4 5 3 4 0 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Asia Pacific Middle East US GoM Northwest Europe

Jackup deliveries Supply addition based on announced newbuilds

Source: IHS-Petrodata Source: Clarksons, company data, Credit Suisse estimates

Figure 5:We believe demand for marine supply base in Figure 6: Ezion is trading at 2015 EV/EBITDA of 7.1x, Australia has peaked, with 17% YoY decline in Mermaid above the sector average of 6.5x despite its aged fleet Marine's Dampier supply base EBITDA in CY2H13

200 60% 35 Ezion 180 55% Hercules Diamond 30 Noble 160 50% 140 45% 25 Ensco 120 40% 20 Rowan 100 35% COSL 80 30% 15 Aban

60 25% 10 Transocean 40 20% 5 20 15% Averageage of jackup fleet(years) Atwood Seadrill 0 10% 0 FY09 FY10 FY11 FY12 FY13 1H14 3 4 5 6 7 8 9 10 11 Revenue EBITDA Margin 2015 EV/EBITDA

Source: Company data Source: BLOOMBERG, IHS-Petrodata, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 2 09 July 2014 A service rig is not a liftboat Market under-estimating risks to service rigs

While Ezion has been typically seen as a play on the underpenetrated liftboat market, we Of Ezion's fleet of 34 see a shift in its mix of portfolio towards service rigs, which are generally old jackups vessels, 14 are liftboats and converted into other uses including accommodation, or that continue to be used as drilling 20 are service rigs. rigs. Of Ezion's fleet of 34 vessels in operation or under construction, 14 are liftboats and 20 are service rigs. Based on our estimates, the average age of Ezion's service rig fleet is 33 years. While Ezion's ROE target of 30% can be met with strong dayrates currently, we believe the market is underestimating the risks of owning such assets. With a surge in newbuild jackup deliveries in 2014-16 which will lead to 30% growth in the global fleet, we Rig replacement cycle could believe there could be downside risks to dayrates and utilisation rates. We expect the drive downward pressure to replacement cycle to drive bifurcation, with premium assets outperforming the older fleet. dayrates Higher-than-expected costs when upgrading old rig assets could also lead to lower returns, reflected in its Prime Exerter project which has been delayed by at least 8 months. Greater competition expected in liftboat market We believe Ezion's key strength lies in its fleet of liftboats, which are self-propelled, self- elevating offshore working platforms used for maintenance of production platforms. Based on the Credit Suisse proprietary liftboat model, we estimate that only 6 of the 245 liftboats operating globally are deployed in Asia Pacific. With 1691 production platforms in the region, we believe the Asia Pacific liftboat market remains underpenetrated. Assuming the market can sustain a platform-to-liftboat ratio of 20:1 like in US GoM and West Africa, we see scope for the liftboat fleet in Asia Pacific to grow to more than 80 units. The demand- supply imbalance has attracted significant newbuild activity, with 13 of the 30 liftboats under construction expected to be deployed in Asia Pacific. We expect supply to grow Our channel checks indicate further due to the low barriers to entry, and our channel checks indicate the potential for significant new entrants into several new entrants, including global liftboat operators such as Hercules and Gulf Marine Asia Pacific liftboat market Services, as well as Singapore companies such as ASL Marine and Falcon Energy. Demand has peaked for Australian supply base In close proximity to oil and gas projects in Australia's Northern Territory, Ezion's 36-ha marine supply base at Port Melville could serve LNG projects in the region. However, rising costs have driven Australian greenfield projects to the top end of capex per metric tonne of liquefaction capacity globally, which may lead to a slowdown in new projects sanctioned. Indeed, GDF Suez and Santos have recently abandoned their plans for the US$5.1 bn Bonaparte FLNG development. As a result of lower activity in the region and higher fixed operating cost, peer Mermaid Marine saw a 17% YoY decline in its EBITDA from the Dampier Supply Base in CY2H13. As such, we see limited scope for upside earnings surprise from Port Melville, with a potential spinoff the most likely outcome. Initiate with UNDERPERFORM We initiate on Ezion with an UNDERPERFORM rating and target price of S$1.80, based on a SOTP valuing (1) liftboats using a DCF with an estimated useful life of 15 years; (2) service rigs with an estimated useful life of five years or over the current contract duration, with no terminal value; (3) 7x P/E for its offshore logistics vessels business, in line with peer Mermaid Marine; (4) mark-to-market for its associates. While Ezion's 2015 P/E of 7.4x may appear attractive, we do not believe it is relevant as close to 40% of its earnings Ezion's 2015 EV/EBITDA of are from service rigs which are not likely to be recurring beyond their useful life. Based on 7.1x is at a premium to our estimates, the implied 2015 P/E valuation of Ezion's liftboat business is at 10.0x, a peers premium to peers GMS (8.4x) and Hercules Offshore (6.7x). At a group level, Ezion's 2015 EV/EBITDA of 7.1x is above the sector average of 6.5x despite its older fleet. Key risk would include stronger-than-expected contract wins, particularly in the liftboat segment.

Ezion Holdings (EZHL.SI) 3 09 July 2014 Valuation table

Figure 7: Offshore services valuation table Current Target Mkt Cap Ave 3M PE (x) PB (x) ROE (%) EV/EBITDA (x) Div Yield (%) Rating price price (US$m) T/O (mn) 13A 14E 15E 13A 14E 15E 13A 14E 15E 13A 14E 15E 14E Ezion Holdings U 2.10 1.80 2,213 9.8 10.3 10.5 7.4 2.5 1.9 1.6 20.0 17.5 21.1 17.0 10.5 7.1 0.0

Atwood Oceanics N 51.60 55.00 3,317 7.3 9.9 9.1 6.9 1.5 1.2 1.1 15.0 13.5 15.5 8.4 7.9 6.0 0.0 Diamond Offshore N 48.79 40.00 6,691 14.3 11.6 17.3 15.1 1.5 1.5 1.5 12.7 8.7 10.1 5.9 8.0 6.7 7.2 Ensco N 53.80 55.00 12,571 33.9 8.9 9.6 10.0 1.0 0.9 0.9 10.9 9.7 8.9 7.2 7.7 7.8 5.6 Hercules N 4.07 5.00 654 4.5 16.9 9.6 6.7 0.8 0.8 0.7 4.7 7.8 10.0 5.6 4.4 3.4 0.0 Noble NR 32.34 n.a 8,222 25.1 11.2 9.4 8.7 1.0 0.9 0.9 9.2 9.8 9.5 7.0 6.1 5.4 0.0 Ocean Rig N 18.50 22.00 2,436 1.1 20.0 9.5 9.6 0.8 0.8 0.7 4.1 8.0 7.3 10.5 6.3 5.5 0.0 Rowan O 31.61 42.00 3,935 16.2 16.2 14.0 7.5 0.8 0.8 0.7 5.0 5.4 9.3 8.3 8.9 5.8 0.9 Seadrill N 39.60 30.00 18,532 22.1 15.8 13.2 11.4 2.6 2.0 2.0 17.7 16.3 19.5 11.9 11.3 10.0 10.1 Transocean R 43.94 n.a 15,906 29.1 10.7 10.2 12.4 0.9 0.9 0.9 9.2 8.6 7.0 6.6 7.0 7.7 0.1 US Offshore Services 13.5 11.3 9.8 1.2 1.1 1.0 9.8 9.8 10.8 7.9 7.5 6.5 2.7

Aker Solutions O 102.00 120.00 4,538 12.9 18.4 16.3 11.3 2.1 1.5 1.4 11.3 9.1 12.3 10.3 7.3 6.0 4.2 Saipem U 20.03 20.00 12,027 37.4 n.m 26.1 12.2 1.9 1.8 1.6 n.m 6.8 12.9 21.6 9.3 6.2 1.3 Subsea 7 N 114.20 144.00 6,524 22.7 19.8 10.9 9.8 0.9 0.9 0.8 5.4 8.8 9.3 8.4 5.5 4.9 4.1 Technip O 80.36 95.00 12,430 25.8 17.8 17.5 11.7 2.5 2.3 2.2 14.1 13.3 18.3 7.9 7.5 5.2 2.3 Gulf Marine Services NR 152.00 n.a 910 n.a 11.1 8.4 n.a 2.4 2.0 n.a 27.9 25.5 n.a 9.3 7.6 0.0 European Offshore Services 18.7 17.7 11.3 1.9 1.6 1.5 10.3 9.5 13.2 12.1 7.4 5.6 3.0

COSL O 19.16 23.00 12,896 19.7 10.3 9.5 8.7 1.9 1.6 1.4 18.0 16.3 15.8 9.2 7.5 6.5 3.1 Aban Offshore O 854.40 899.00 620 4.6 10.8 9.9 8.7 1.0 0.9 0.9 8.7 8.7 9.4 8.0 7.1 6.3 0.5 Mermaid Marine O 2.02 3.64 694 4.1 8.1 7.8 7.4 1.1 1.1 1.0 14.2 13.8 13.7 6.5 5.9 5.5 6.6 Asia Offshore Services 9.7 9.1 8.3 1.3 1.2 1.1 13.7 12.9 13.0 7.9 6.8 6.1 3.4

ASL Marine NR 0.68 n.a 229 0.0 6.3 6.4 7.3 0.7 0.7 0.6 9.9 7.1 6.8 n.a n.a n.a 0.0 Dyna-Mac NR 0.38 n.a 308 0.6 13.4 12.1 9.6 2.0 1.9 1.8 15.5 15.7 19.2 n.a n.a n.a 0.1 Ezra Holdings NR 1.25 n.a 977 3.0 18.7 16.8 11.8 0.9 0.8 0.8 5.0 5.6 7.5 12.7 12.0 9.5 0.0 Mermaid Maritime NR 0.46 n.a 522 0.9 15.4 10.1 9.3 n.a 0.9 0.8 5.0 9.4 9.5 n.a 7.8 8.0 0.0 Nam Cheong NR 0.44 n.a 675 2.0 11.3 9.1 7.8 2.5 2.1 1.7 26.9 24.9 23.8 n.a 9.3 7.9 0.0 Pacific Radiance NR 1.39 n.a 809 0.9 14.2 11.7 9.9 n.a 1.8 1.6 n.a 17.4 17.2 n.a 12.9 10.5 0.0 Swiber Holdings NR 0.56 n.a 272 0.7 4.6 n.m n.m. 0.4 0.5 0.5 12.0 n.m 1.1 4.6 14.7 12.7 0.0 Singapore Mid-Cap 12.0 11.0 9.3 1.3 1.2 1.1 12.4 13.4 12.2 8.6 11.4 9.7 0.0

Keppel Corp O 10.82 12.70 15,770 25.6 13.8 12.2 10.3 2.0 1.7 1.5 14.6 13.7 14.9 10.3 9.3 7.2 4.1 Sembcorp Marine N 4.08 3.90 6,841 7.0 15.4 15.2 13.1 3.2 2.9 2.6 20.6 18.9 19.6 10.2 7.8 6.6 3.4 Sembcorp Industries N 5.40 5.40 7,745 7.1 11.8 12.2 11.1 1.8 1.7 1.5 15.7 13.8 13.9 6.3 6.2 5.4 3.1 Singapore Rigbuilders 13.7 13.2 11.5 2.3 2.1 1.9 17.0 15.5 16.1 8.9 7.8 6.4 3.5

Cosco Corp U 0.72 0.60 1,285 0.6 52.3 56.2 31.4 1.2 1.2 1.2 2.3 2.1 3.7 10.8 15.5 13.7 1.4 Yangzijiang O 1.08 1.50 3,325 8.9 6.7 7.3 6.7 1.2 1.0 0.9 17.4 14.3 14.0 5.4 9.4 7.3 4.5 Guangzhou Shipyard - H NR 13.73 n.a 1,049 0.0 n.a n.a 2.3 n.a n.a n.a n.a 0.7 53.7 n.a n.a n.a n.a Guangzhou Shipyard - A NR 17.14 n.a 1,211 0.0 n.a n.a 40.4 2.8 2.9 2.7 0.3 n.a 5.9 n.a n.a n.a n.a China CSSC NR 21.91 n.a 4,867 28.2 n.a n.a 66.0 1.7 1.7 1.7 0.2 0.7 2.6 n.a n.a n.a 0.0 China Rongsheng NR 1.76 n.a 1,611 10.0 n.m n.m n.m n.a 0.9 0.9 n.a n.m n.m n.a n.a n.a 0.0 China Shipbuilding NR 4.86 n.a 13,734 48.7 25.6 19.1 19.6 1.6 1.5 1.4 7.3 6.5 7.2 n.a n.a n.a 0.0 Chinese Shipbuilders 28.2 27.5 27.7 1.7 1.5 1.5 5.5 4.9 14.5 8.1 12.5 10.5 1.2

Hyunday Heavy U 176,000 146,000 13,230 41.5 48.0 n.m 27.0 0.8 0.8 0.8 1.6 n.m 2.8 15.6 36.9 20.4 4.3 Samsung Heavy N 26,900 28,000 6,143 47.4 9.8 39.8 16.2 1.1 1.1 1.0 10.8 2.6 6.2 6.8 13.9 9.2 1.9 Hyundai MIPO U 147,500 77,000 2,918 13.7 n.m n.m n.a 1.0 1.0 1.0 n.m n.m 0.3 n.m n.m n.a 1.4 DSME R 25,550 n.a 4,837 13.7 18.0 12.9 9.6 1.0 0.9 0.9 5.6 7.4 9.3 7.0 5.9 4.9 0.0 Korea Shipbuilders 25.3 26.3 17.6 0.9 0.9 0.9 6.0 5.0 4.7 9.8 18.9 11.5 1.9

IHI Corp N 471.0 450.00 7,151 40.4 20.8 19.9 17.3 2.3 2.1 1.9 11.0 10.5 11.0 10.3 8.8 7.9 1.2 Kawasaki HI NR 409.0 n.a 6,711 41.2 18.6 15.7 13.3 1.9 1.8 1.6 10.6 11.8 12.7 6.5 5.6 4.9 0.0 Mitsubishi HI O 660 800.00 21,737 88.5 15.3 15.3 14.6 1.5 1.4 1.3 9.6 8.9 8.7 8.2 6.8 6.1 1.4 Japan Shipbuilders 18.2 16.9 15.0 1.9 1.7 1.6 10.4 10.4 10.8 8.3 7.1 6.3 0.9

Bumi Armada N 3.30 4.30 3,036 2.8 22.4 19.1 17.5 2.2 2.0 1.8 9.9 10.6 10.6 13.4 12.0 11.9 1.0 MMHE U 3.81 3.25 1,912 0.4 25.8 23.5 21.9 2.4 2.2 2.1 9.2 9.4 9.4 21.8 16.6 15.8 1.3 UMW Oil & Gas N 4.21 4.60 2,855 4.8 48.3 31.3 22.3 6.7 5.5 4.4 13.8 17.6 19.8 31.2 23.6 16.2 0.0 Alam Maritim NR 1.64 n.a 476 1.8 16.6 14.3 12.1 2.2 1.8 1.6 14.1 13.8 14.3 23.5 17.5 15.6 0.0 Dialog Group NR 3.85 n.a 2,970 4.6 45.0 37.0 30.9 6.6 6.0 5.3 15.7 17.5 18.9 35.7 29.8 27.1 0.0 Perisai Petroleum NR 1.58 n.a 591 1.3 58.5 26.8 12.2 1.5 1.9 1.7 n.a 6.9 14.3 n.a 18.8 11.4 0.0 SapuraKencana NR 4.40 n.a 8,270 11.6 24.2 17.8 15.6 2.6 2.3 2.1 13.2 14.1 15.0 15.5 12.5 11.3 0.0 Wah Seong NR 1.90 n.a 462 1.0 45.2 13.9 11.6 1.5 1.5 1.5 3.3 9.4 10.8 14.4 7.6 6.7 0.0 Malaysia Oil and Gas 35.7 23.0 18.0 3.2 2.9 2.6 11.3 12.4 14.1 22.2 17.3 14.5 0.3 Source: Company data, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 4 09 July 2014 Market underestimating risks to service rigs While Ezion has been typically seen as a play on the underpenetrated liftboat market, we see a shift in its mix of portfolio towards service rigs, which are generally old jackups converted into other uses including accommodation, or that continue to be used as drilling rigs. Of Ezion's fleet of 34 vessels in operation or under construction, 14 are liftboats and 20 are service rigs. Based on our estimates, the average age of Ezion's service rig fleet is 33 years. While Ezion's ROE target of 30% can be met with strong dayrates currently, we believe the market is underestimating the risks of owning such assets. With a surge in newbuild jackup deliveries in 2014-16 which will lead to 30% growth in the global fleet, we believe there could be downside risks to dayrates and utilisation rates. We expect the replacement cycle to drive bifurcation, with premium assets outperforming older fleet. Higher-than-expected costs when upgrading old rig assets could also lead to lower returns, reflected in its Prime Exerter project which has been delayed by at least 8 months. Significant portion of assets are service rigs Ezion owns a fleet of liftboats and service rigs. Liftboats are self-propelled, self-elevating offshore working platforms with a large open deck space, jackup legs, cranes and living quarters. Unlike jackup rigs and construction barges, liftboats can reposition themselves at an offshore site or move to another location without the requirement for third party assistance. Once in position, a liftboat can perform a range of services, including well- servicing, commissioning, maintenance and decommissioning of offshore platforms. On the other hand, service rigs are generally old jackups converted into other uses including accommodation, or that continue to be used as drilling rigs.

Figure 8: A service rig is not a liftboat Liftboat Service rig Self-propelled Yes No Purpose Well servicing, commissioning, maintenance and de- Drilling or accommodation commissioning of offshore platforms Cost of asset US$60-140mn US$20-60mn for old jackup rig, and up to US$20mn for refurbishment Key deployment areas Southeast Asia, Middle East, West Africa Mexico, India, Middle East Advantages  Provides a stable work platform for offshore service  Lower cost compared to newbuild unit functions  Shorter lead time compared to newbuild unit  Self-propelled reduces mobilisation cost for rig  More efficient and safer compared to workboats and barges Disadvantages  Longer lead time as construction takes at least 24  Safety concerns due to aged asset months  Not self-propelled increases mobilisation cost Examples Teras Conquest Prime Exerter

Source: Company data, Credit Suisse research

Ezion Holdings (EZHL.SI) 5 09 July 2014

Of Ezion's fleet of 34 vessels which are operational or under construction, 14 are liftboats and 20 are service rigs. Of its fleet of 20 service rigs, we estimate that 10 units (50%) are drilling rigs, 9 are used for accommodation, and the use of 1 unit is unknown.

Figure 9: Of Ezion's fleet of 34 rigs, 20 are service rigs Figure 10: Service rigs used for drilling and accommodation purposes Unknown 1

Liftboats 14 Accommodation 9 Service rigs 20 Drilling 10

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates Mix of assets has shifted towards service rigs While Ezion started with having a fleet consisting entirely of liftboats, more significant investment in service rigs has led to a change in the mix of its assets towards service rigs. In 2012, of the 12 new contracts announced, 9 were for service rigs. As a result, the number of operational service rigs exceeded the number of liftboats in January 2014. Contract wins YTD show a similar trend, with service rigs representing 4 out of 5 of the new orders.

Figure 11: Mix of service rigs vs liftboats awarded Figure 12: Mix of services rigs vs liftboats in operation

10 40 9 9 35 8 30 7 25 6 20 5 20 5 20 4 4 4 16 3 3 15 3 2 2 10 12 2 1 4 13 14 5 1 1 9 0 3 3 5 5 0 0 2010 2011 2012 2013 2014 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Liftboat Service rigs Liftboat Service rigs

Source: Company data Source: Company data, Credit Suisse estimates Average age of service rig fleet is 33 years Unlike other rig owners, Ezion does not provide a list of its service rig fleet with names of its rigs. However, we have tried to identify its fleet of service rigs based on the contract announcement date, contract duration, deployment region disclosed. Based on our

Ezion Holdings (EZHL.SI) 6 09 July 2014 estimates, the average age of Ezion's service rig fleet is 33 years. Service Rig 10 (GSP Atlas) is the youngest at 29 years, while service rig 13 (Noah's Ark) is the oldest at 41 years. We have assumed service rig 18 and 19 to be Ensco 69 and Wisconsin, as they were the only secondary jackup transactions in 1Q14 with an undisclosed buyer and value.

Figure 13: Average age of Ezion's service rig fleet is 33 years Service rig no. Rig name Delivery year Age 1 Endeavour 1983 31 2 GSF Labrador 1983 31 3 Atlantic Tiburon 3 1982 32 4 Atlantic Amsterdam 1982 32 5 Atlantic London 1984 30 6 Atlantic Tiburon 1 1982 32 7 Atlantic Tiburon 2 1981 33 8 Atlantic Esbjerg 1975 39 9 Prime Exerter 1981 33 10 GSP Atlas 1985 29 11 GSP Fortuna 1984 30 12 GSF Adriatic VIII/Victory Driller 1983 31 13 Pride Pennsylvania/Noah's Ark 1973 41 14 GSP Orizont 1982 32 15 Rowan Paris/Teras Titanium 1980 34 16 GSF 134/Strategic Excellence 1982 32 17 Ensco 85/Valliant Driller 1981 33 18 Ensco 69 1976 38 19 Wisconsin 1976 38 Source: IHS-Petrodata, Rigzone, Credit Suisse estimates Ezion has second oldest fleet of rig assets globally With an average age of 33.2 years, Ezion has one of the oldest fleet of jackup rigs/service rigs assets globally. Shelf Drilling has a slightly older fleet with an average age of 33.4 years, after buying 37 old jackups from Transocean in 2012. Seadrill and UMW Oil and Gas have the youngest fleet of jackups in operation globally, having invested significantly in newbuild assets in recent years.

Figure 14: Ezion has one of the oldest fleet of jackup/service rigs

40.0 40

35.0 35

30.0 30

25.0 25

20.0 20

15.0 15

10.0 10

5.0 5

0.0 0 Shelf Ezion HerculesDiamond Noble Ensco Rowan COSL Aban TransoceanAtwood Seadrill UMW

Average age (Yrs) - LHS No. of jackups - RHS

Source: IHS-Petrodata, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 7 09 July 2014

Ezion has been key buyer of second hand jackup assets since 2013 Figure 15 shows the list of secondary jackup rig transactions since 2013. During this period, Ezion was the single largest buyer of old jackup rig assets, including Pride Pennsylvania, GSF Adriatic VIII, Rowan Paris, GSF Rig 134, and Ensco 85.

Figure 15: Secondary jackup rig transaction since 2013 Rig Name Design Water Year in Price Seller Buyer Depth service (US$mn) Pride Pennsylvania LeTourneau Class 53-C 300’ 1973 16 Ensco Ezion Ben Avon LeTourneau Class 82 SD-C 250’ 1980 55 Abbot Group Hercules D.R. Stewart LeTourneau Class 116-C 300’ 1980 Transocean (undisclosed) GSF Adriatic VIII LeTourneau Class 116-C 328’ 1983 Transocean Ezion Interocean III The Offshore Company Orion 300’ 1976 Transocean AMAK Rowan Paris LeTourneau Class 116-C 350’ 1980 40 Rowan Ezion Triden IV LeTourneau Class 116-C 300’ 1980 25 Transocean Millennium Offshore Services Triden VI Mitsui 300C-35 220’ 1981 Transocean Thule Power Baker Marine BMC-200-H 250’ 1982 37 Twin Fountain Nabors 867 Pool Energy 140 series 150’ 1982 Nabors Vicksburg LeTourneau Class 84-C Modified 300’ 1976 55.4 Atwood Gulf Drilling International GSF Rig 134 F&G L-780 MOD II 300’ 1982 Transocean Ezion GSF Rig 127 F&G L-780 MOD II 250’ 1981 Transocean ADES Energy Noble Gene Rosser Levingston Class 111-C 300’ 1977 Noble Hercules 170 The Offshore Company 170’ 1981 8.3 Hercules Focus Energy Pride Wisconsin LeTourneau Class 84-S 300’ 1976 Ensco Undisclosed ENSCO 69 LeTourneau Class 84-S 400’ 1976 Ensco Undisclosed GSF Monitor F&G L-780 MOD V 350' 1989 Transocean LOTOS Petrobaltic Ensco 85 LeTourneau Class 116-C 300' 1981 64 Ensco Ezion Hercules 2002 Bethlehem JU-250 MC 200' 1982 1.8 Hercules Undisclosed Hercules 258 Bethlehem JU-250 MS 250' 1979 12 Hercules Undisclosed Hercules 250 Bethlehem JU-250 MS 250' 1974 Hercules Coastal Energy Source: IHS-Petrodata Service rigs provides attractive near-term returns, but also higher associated risks Ezion targets at least 30% ROE for its investments, which can be achieved from the attractive dayrates for service rigs currently. In Figure 16 we show an estimated project IRR and equity IRR for one of its service rig units which is on a four-year bareboat charter to a national oil company in the Middle East. We estimate a capex of US$40 mn, comprising US$22 mn rig cost and US$18 mn refurbishment cost. Assuming a dayrate of US$33,630 and an annual revenue of US$12.3 mn over five years would lead to a project IRR of more than 10%. If we further assume that the project is 70% debt financed through borrowing at a rate of 5% to be repaid over five years, the equity IRR would be at 30%.

Ezion Holdings (EZHL.SI) 8 09 July 2014

Figure 16: Project IRR of 13% and equity IRR of 31% for service rig Service Rig 0 1 2 3 4 5 Investment -40 Revenue 12.3 12.3 12.3 12.3 12.3 Operating cost -0.8 -0.8 -0.8 -0.8 -0.8 FCF -40 11.5 11.5 11.5 11.5 11.5 Project IRR 13%

Debt principal repayment -5.6 -5.6 -5.6 -5.6 -5.6 Interest cost -1.4 -1.1 -0.8 -0.6 -0.3 FCFE -12 4.5 4.8 5.1 5.3 5.6 Equity IRR 30% Source: Company data, Credit Suisse estimates Figure 17 and Figure 18 compare the economics of a 30-year jackup with that of a newbuild unit. Using the same assumption as above, the ROE for a service rig could be close to 50%. However, based on the newbuild price for a jackup rig of US$210mn and expected dayrate of US$150,000, the ROE for a newbuild unit will only be 24%.

Figure 17: 30-year jackup rig economics Figure 18: Newbuild jackup rig economics Bareboat contract US$mn Comments Jackup rig contract US$mn Comments Capex 40 Capex 210 Debt 28 70% Debt 147 70% Equity 12 30% Equity 63 30%

Dayrate 0.034 Dayrate 0.15 Revenue 12.3 Revenue 54.8 Operating Expense -0.8 Bareboat Operating Expense -21.9 Time charter Depreciation -4 Assume 10 years Depreciation -8.4 Assume 25 years Interest expense -1.4 5% Interest cost Interest expense -7.4 5% Interest cost Tax 0 Section 13A exemption Tax -2.2 PAT 6.1 PAT 14.9 ROE 51% ROE 24% Source: Ezion Source: Seadrill While the headline ROE may appear attractive, we believe it has to be weighed against the significant risks which include the following: (1) Rig replacement cycle poses downside risks to utilisation and dayrates of older assets. (2) Potential delays from yard upgrading. (3) Service rigs on bareboat charter and operated by third party companies. Risk #1: Downside risks to utilisation and dayrates Significant growth in newbuild jackup fleet Despite the strong jackup fixtures market currently, many drillers have cautioned about potential oversupply in the jackup market with close to 150 jackups due for delivery in the coming years. 2015 will see peak jackup deliveries of 63 units, of which only six are currently contracted.

Ezion Holdings (EZHL.SI) 9 09 July 2014

Figure 19: Jackup rig deliveries increasing to 63 units in Figure 20: Of these 63 units only six are contracted 2015

70 70 63

60 60 6

50 47 50 41 41 7 40 40 8 30 30 30 24 23 57 21 20 16 17 20 40 14 12 9 10 10 10 4 5 4 3 12 0 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2014 2015 2016

Jackup addition Delivered Uncontracted Contracted

Source: IHS-Petrodata Source: IHS-Petrodata, Credit Suisse estimates A key industry concern would be the potential for rig utilisation rates and dayrates to decline when these rigs are delivered. Based on the Credit Suisse rig demand and supply model, we estimate that to maintain utilisation rate above 80% through to 2016, rig demand has to grow by 6% p.a. (vs 9% in 2012), and eight rigs have to be removed per year, similar to in 2013.

Figure 21: Jackup demand and supply model Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Supply Fleet—BOY 389 386 388 398 413 439 456 478 482 481 514 547 602 Jackup additions 4 9 12 16 30 24 23 17 14 41 41 63 67 Jackup removals 7 7 2 1 4 7 1 13 15 8 8 8 8 Fleet—EOY 386 388 398 413 439 456 478 482 481 514 547 602 661 Fleet—average 388 387 393 406 426 448 467 480 482 498 531 575 632 Demand Contracted 341 353 361 369 390 341 338 356 388 428 453 481 510 Demand growth 2% 4% 2% 2% 6% -13% -1% 5% 9% 10% 6% 6% 6% Utilisation rate 88% 91% 92% 91% 91% 76% 72% 74% 81% 86% 85% 84% 81% Source: IHS Petrodata, Credit Suisse estimates Tight demand-supply balance has lifted dayrates for global jackup fleet for now, but bifurcation to impact dayrates for older units With the utilisation of premium jackups above 90% since July 2011, strong demand in the shallow water drilling market has also lifted the utilisation rate of standard jackups from 72% in July 2011 to 85% in April 2014. Since January 2012, average dayrates for the standard jackup fleet have risen by 29% to US$117,000, exceeding the 21% increase for the premium jackup fleet. However, with a surge in newbuild deliveries, we expect the rig replacement cycle to drive downward pressure on dayrates and utilisation rates of older assets. As a result, companies with premium assets are likely to outperform companies with standard/ commodity fleets. This is driven by a shift towards more complex wells (extended reach horizontal wells, high pressure, high temperature wells, among others), which has resulted in a stratification of the offshore rig fleet. It appears that these new generation rigs are increasingly required to enable the conversion of these more challenging reservoirs.

Ezion Holdings (EZHL.SI) 10 09 July 2014

Figure 22: Utilisation of premium jackups vs standard Figure 23: Dayrates of premium jackups vs standard jackups jackups 100.00 200000

95.00 180000 160000 90.00 140000 85.00 120000

80.00 100000

75.00 80000 60000 70.00 40000 65.00 20000

60.00 0 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014 Jan 2004 Jan 2005 Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013 Jan 2014

Standard Jackups Premium Jackups Standard Jackups Premium Jackups

Source: IHS-Petrodata, Credit Suisse estimates Source: IHS-Petrodata, Credit Suisse estimates Lessons from the deepwater market We believe we can draw lessons from the deepwater market, which has started to show signs of weakness since late 2013 with a slowdown in demand and increase in deliveries. Weakness in the deepwater market has been reflected mainly in slower tendering activity and lower fixture rates, particularly for older rigs as they are replaced by newbuild units commencing operations. Two of Transocean's 5th generation ultra deepwater rigs have become idle, including Transocean’s Development Driller I in the US GOM and Sedco Energy in West Africa. In April, Diamond Offshore’s Ocean Saratoga 2nd generation semisub was contracted at a dayrate of US$250,000 from US$300,000 previously, and Ensco 8505 5th generation semisub was contracted at US$375,000 from US$488,000 previously.

Figure 24: Semisubmersible fixtures since March 2014 Fixture Operator Rig name Manager Region Contract Contract Type Dayrate Prior date start days dayrate 22 May Addax Scarabeo 3 Saipem W Africa May-14 365 Priced option 20 May BP Deepsea Stavanger Odfjell Drilling W Africa Nov-14 395 New mutual 531,645 420,000 16 May PTTEP ENSCO 5005 Ensco Indian Ocean Jul-14 350 New mutual 230,000 16 May PEMEX Ocean Lexington Diamond Mexico Sep-14 1189 New mutual 160,850 300,000 8 May Vaalco GSF Celtic Sea Transocean W Africa Oct-14 60 New mutual 320,000 8 May Lukoil GSF Development Driller II Transocean Med Sea Aug-14 365 New mutual 360,000 8 May BP Paul B. Loyd, Jr. Transocean NW Europe Apr-15 797 New mutual 430,000 440,000 5 May Apache Atwood Falcon Atwood Aus/NZ Nov-14 70 New mutual 385,000 365,750 1 May BHP Billiton Atwood Falcon Atwood Aus/NZ Apr-15 330 New mutual 430,000 365,750 1 May Ithaca Energy Ocean Princess Diamond NW Europe Jul-14 30 New mutual 345,000 230,000 23 April PVEP Ocean Quest Diamond SE Asia May-14 225 New mutual 198,900 18 April OMV Transocean Arctic Transocean NW Europe Aug-15 153 New mutual 519,000 415,000 16 April Anadarko ENSCO 8500 Ensco US GOM Sep-14 365 Priced option 300,000 300,000 16 April Deep Gulf Energy ENSCO 8505 Ensco US GOM Dec-14 181 New mutual 375,000 488,000 8 April PetroSA Transocean Marianas Transocean W Africa May-14 300 New mutual 370,000 3 April LLOG Ocean Saratoga Diamond US GOM Apr-14 34 Mutual 250,000 300,000 option 2 April EnQuest Ocean Princess Diamond NW Europe Jun-14 40 Priced option 300,000 230,000 1 April Total Ocean Monarch Diamond SE Asia Jun-14 60 New mutual 420,000 18 March BP Ocean Victory Diamond C America Apr-15 731 New mutual 398,000 14 March Shell Noble Clyde Boudreaux Noble Aus/NZ Apr-15 91 Priced option 515,000 417,000 14 March Shell Noble Clyde Boudreaux Noble Aus/NZ Jul-15 71 Priced option 515,000 417,000 4 March Santos Nanhai VI Maersk Drilling Aus/NZ Mar-15 65 Priced option Private Source: IHS-Petrodata, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 11 09 July 2014

Ezion's service rigs fleet used mainly in Mexico and India Of Ezion's ten drilling rigs in operation or under construction, six are deployed in Mexico, two in India, and one unit each in Alaska and the Caspian Sea. As shown in Figure 26, there is a significant aged jackup fleet in Mexico and India. In India, the average age of the jackup fleet is 25 years, while 21 rigs operating are above 30 years of age. In Mexico, the average age of the jackup fleet is 20 years, while 22 rigs operating are above 30 years of age.

Figure 25: Most of Ezion's drilling service rigs are used in Figure 26: 21 rigs in India and 22 rigs in Mexico are above Mexico and India 30 years of age 50 100 45 90 Caspian Sea, 1 40 80

35 32 70 Alaska, 1 30 60 25 23 25 21 50 20 20 40 15 30 India, 2 Mexico, 6 12 10 20 5 10 0 0 US GOM India Middle East China Mexico SE Asia

Average age (LHS) No. of jackups more than 30 years of age (RHS)

Source: Company data, Credit Suisse estimates Source: IHS-Petrodata, Credit Suisse estimates Surge in newbuild rigs entering Mexico and India We believe there is downside risk to dayrates of older jackups operating in Mexico and India, with a surge in newbuild deliveries to these regions. Based on our analysis of the global rig order book, 16 newbuild jackups will be entering the Mexico market, of which 12 will be delivered in 2015. Eight newbuild jackups will be entering the Indian market, of which four will be delivered in 2015.

Figure 27: 12 newbuild rigs entering Mexican market in Figure 28: 16 newbuild rigs entering Mexican market and 2015 8 newbuild rigs entering Indian market Hi-spec North Middle East, 3 Sea, 1 China, 4 India, 8

SE Asia, 11 India, 4

Speculative, 25 Hi-spec North Sea, 12 Speculative, 54 SE Asia, 5 China, 12

Middle East, 13

Competitive, 8 Competitive, 21 Mexico, 16

Mexico, 12

Source: IHS-Petrodata, Credit Suisse estimates Source: IHS-Petrodata, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 12 09 July 2014

Average age of fleet in Mexico has been coming down With the start of newbuild deliveries into the Mexican market, the average age of the jackup fleet operating in the region has fallen sharply from 27 years in January 2012 to 20 years currently. This has coincided with an increase in the number of jackups operating in the region to 45 units today from just 27 units in January 2011.

Figure 29: Average age of rigs operating in Mexico has declined to 20 years

50 30

45 28

40 26

35 24

30 22

25 20

20 18

15 16

10 14

5 12

0 10 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current

No. of jackups - LHS Average Age - RHS

Source: IHS-Petrodata, Credit Suisse estimates Risk #2: Potential delays during refurbishment While the headline return for service rigs may appear attractive, potential delays and cost overruns during refurbishment can erode returns significantly, as exemplified by Ezion's Prime Exerter project. Prime Exerter delayed by at least eight months Ezion's largest project Prime Exerter was supposed to commence operations in 4Q13 but is now only expected to contribute to earnings in August 2014. The unit was dis- assembled at Keppel Verolme's shipyard in Holland and then transported by multiple barges along the Kiel Canal in April 2013 to be re-assembled at Baku prior to the scheduled commencement of operations. According to IHS-Petrodata, delays due to weather and technical reasons led to a pushback in commencement and by June the rig had still not commenced its contract. While there are no penalties from Petronas for the delay, Ezion is likely to incur an additional cost of US$13-15 mn for the project, which will be capitalised over the life of the rig, leading to an additional cost of US$1.5 mn per year over ten years. Additional cost changes project economics significantly In Figure 30 we show the expected IRR for the Prime Exerter project assuming that it is able to maintain its dayrate of US$110,000 over a seven-year period, vs the current contract period of 3+2 years. With a capex of US$165 mn initially, the equity IRR for the project would be at 30%. However, with an increase in the refurbishment cost by US$15 mn, the equity IRR declines to 23%.

Ezion Holdings (EZHL.SI) 13 09 July 2014

Figure 30: Service rig No. 18 assuming capex of US$165mn Service Rig No. 18 0 1 2 3 4 5 6 7 Investment -165 FCF -165 40.2 40.2 40.2 40.2 40.2 40.2 40.2 Project IRR 21% Debt principal repayment -24.75 -24.75 -24.75 -24.75 -24.75 Interest cost -6.2 -5.0 -3.7 -2.5 -1.2 FCFE -41.25 9.3 10.5 11.7 13.0 14.2 40.2 40.2 Equity IRR 30% Source: Company data, Credit Suisse estimates

Figure 31: Service rig No. 18 assuming capex of US$180mn Service Rig 0 1 2 3 4 5 6 7 Investment -180 FCF -180 40.2 40.2 40.2 40.2 40.2 40.2 40.2 Project IRR 18% Debt principal repayment -27 -27 -27 -27 -27 Interest cost -6.8 -5.4 -4.1 -2.7 -1.4 FCFE -45 6.5 7.8 9.2 10.5 11.9 40.2 40.2 Equity IRR 23% Source: Company data, Credit Suisse estimates Consensus 2014 EPS has been reduced by 10% YTD With delays in the commencement of operations in Prime Exerter as well as a few liftboat units, consensus 2014 and 2015 EPS have been reduced by 10% and 8% YTD. We believe potential further delays could lead to continued downside risks to earnings.

Figure 32: Consensus EPS for Ezion has been reduced by 10% YTD

130

125

120

115

110

105

100

90 01/01/2013 01/04/2013 01/07/2013 01/10/2013 01/01/2014 01/04/2014 01/07/2014

Consensus 2014 EPS Consensus 2015 EPS

Source: BLOOMBERG Risk #3: Service rigs on bareboat charter and operated by third companies While Ezion's service rigs are backed by charter contracts with national oil companies, close to 90% of the rigs are on bareboat charter and operated by third party companies. This poses a potential earnings risk should the rig operator face financial difficulties, as exemplified by its contract with Bucaneer Energy (service rig 1). In addition, the service rig may be operated by companies with a limited track record, including Primepoint.

Ezion Holdings (EZHL.SI) 14 09 July 2014

Bucaneer Energy in financial difficulties Endeavour was on a five-year contract worth US$109.5 mn to Buccaneer Energy to support offshore oil and gas activities in the Cook Inlet in Alaska, USA. However, Buccaneer Energy, an Australia-based independent company suspended its CEO Curtis Burton in March 2014 and trading of its shares on the Australian stock exchange has been suspended. This follows financial difficulties faced by the company after an investor failed to come up with the capital for the planned drilling of one of its wells. According to the Alaska Journal, the Endeavour rig was moved into north Cook Inlet in later summer 2013 to begin drilling at the Southern Cross prospect, but experienced problems setting the rig's steel legs into the sea bottom due to unexpected soil conditions. An alternative site was surveyed, but faced with funding problems, Buccaneer had to terminate the drilling and move the rig to Port Graham, a port in south Cook Inlet, for winter storage. This led to the company missing a deadline with the state to drill the well, which promoted the state Division of Oil and Gas to terminate the unit in end-2013. Ezion purchased Buccaneer's share of the jackup rig Endeavour in January 2014, and is currently marketing the rig to other customers. Primepoint has limited track record in operating rigs Prime Exerter was on a five-year contract worth US$201 mn to a Southeast Asian based national oil company, which we believe to be Petronas, to support its oil and gas activities in the Caspian Sea. The service rig was on bareboat charter to Primepoint and expected to be deployed and working in the fields of Garagel-Deniz (Gubkin), Deyarbekir (Barinov) and Magtymguly (East Livanov) after its refurbishment and upgrading. Primepoint is a Singapore registered company set up in 2011 to manage construction and operations of two tender assist barges and one semi-tender that had been ordered from China Merchant Heavy. However, these construction contracts were not made effective. In January 2013, Primepoint also ordered two Moss-Maritime CS-50 design harsh environment semisubs from Yangzijiang, with options for two more units at a cost of US$455 mn each. However, as Primepoint was unable to secure the downpayment required, the contracts were not made effective.

Ezion Holdings (EZHL.SI) 15 09 July 2014 Greater competition expected in liftboat market We believe Ezion's key strength lies in its fleet of liftboats, which are self-propelled, self- elevating offshore working platforms used for maintenance of production platforms. Based on the Credit Suisse proprietary liftboat model, we estimate that only six of the 245 liftboats operating globally are deployed in Asia Pacific. With 1691 production platforms in the region, we believe the Asia Pacific liftboat market remains underpenetrated. Assuming the market can sustain a platform-to-liftboat ratio of 20:1 like in US GoM and West Africa, we see scope for the liftboat fleet in Asia Pacific to grow by close to 80 units. The demand- supply imbalance has attracted significant newbuild activity, with 13 out of 30 liftboats under construction expected to be deployed in Asia Pacific. We expect supply to grow further due to the low barriers to entry, and our channel checks indicate the potential for several new entrants, including global liftboat operators such as Hercules and Gulf Marine Services, as well as Singapore companies such as ASL Marine and Falcon Energy. Examining the niche liftboat market Liftboats are self-propelled, self-elevating offshore working platforms with a large open deck space, jack-up legs, cranes and living quarters. Unlike alternatives such as jackup rigs and construction barges which are more costly, liftboats can reposition themselves offshore without any third party assistance. Liftboats can perform a range of services, including production platform construction, inspection/report/maintenance (IRM) and decommissioning, well stimulation, intervention and workover, well plugging and abandonment, pipeline installation and IRM services and dive support operations.

Figure 33: Comparing liftboats with alternatives

Wind Turbine Liftboats Barges Jackup Barges Monohull vessels Jackup rigs Installation Vessels

Overview - Self elevating, self- -Not seen as immediate -Seen as direct -Dedicated vessels that -Not seen as direct -Secondary competition propelled vessels to threat competition to lower typically do not competitor to top end liftboats. support inspection, -Lower upfront costs, end liftboats compete in the O&G '-Less competitive in Threat when jackup maintenance, repair, but additional costs to -Lack of self propulsion market shallow water dayrates are low divindg and have barge towed to can increase operating -Potential competitors if construction activities location costs renewable market collapses

Sector Oil & Gas Oil & Gas Oil & Gas Wind Oil & Gas Oil & Gas Accommodation P P P O P O Construction support P P P  P O Drilling O O O O O P EOR P O O O O O Maintenance Support P O O  O O Well Services P O O  P P Wind installation and maintenance P O O P O O Typical Dayrates US$40-120k US$15-45K US$30-70k US$120-200k US$100-250k US$95-250k OSV dayrates Self-Propelled US$1-4k US$8-12k Self-Propelled Self-Propelled US$24-36k Potential Competition HIGH LOW LOW MEDIUM LOW LOW EMAS Lewek Vessel example GMS Endeavour Fastnet Jack 1 SPO Pacific Orca Seatrucks Jascon 55 Saipem Perro Negro 8 Champion Note: = Services offered,  = No services offered;  _= Potential to offer services. Source: Douglas Westwood Credit Suisse liftboat model In the Credit Suisse proprietary liftboat model, we base our supply on our bottom-up analysis of the company's fleet. Our supply growth forecasts are based on announced newbuild programmes by companies. In this model, demand is driven by the number of production platforms operational in the region and the penetration rate.

Ezion Holdings (EZHL.SI) 16 09 July 2014

Supply remains limited in SE Asia The liftboat market has historically been centred in the US Gulf of Mexico (US GoM) where the region's extensive shallow water operations and relatively benign met-ocean conditions have provided an ideal working environment. In our model we have a total of 245 operating liftboats globally, including 144 in US GoM, 36 in West Africa, 32 in Middle East, 27 in Northwest Europe, and 6 in Asia Pacific.

Figure 34: No. of liftboats split by regions 160 144 140

120

100

36 40 32 27

20 6 0 US GOM West Africa Middle East Northwest Europe Asia Pacific

Source: Clarksons, company data, Credit Suisse estimates US Gulf of Mexico While a significant portion of the global liftboat fleet operates in the US GoM, assets specifically designed for the region generally fail to meet more stringent requirements globally. Deeper waters, harsher climates, and the requirement for classification society approval prevent the migration of vessels from the US GoM. All Coast is the largest operator of liftboats in the US GoM, having acquired a fleet of 39 domestic vessels from Hercules Offshore in 2013. This is followed by EBI (25 units), AMC (16 units), Offshore Marine Contractors (15 units), and Seacor (14 units after acquiring Superior Energy fleet in 2012). Northwest Europe There has been a significant growth in the supply of liftboats in recent years, as wind turbine installation vessels are deployed to service the offshore wind farm sector. The market remains fragmented with a number of players having up to five units each, including Seajacks (4 units), GeoSEA (3 units), HOCHTIEF (3 units). West Africa There are limited players operating liftboats in West Africa, with Hercules (21 units), Michharry (8 units), Dewayle (6 units) dominating the market. Ezion's first liftboat unit was chartered to ExxonMobil in Nigeria for a three-year contract in February 2010. Middle East Saudi Aramco and Gulf Marine Services (GMS) are the key owners of liftboat assets in the Middle East, though the market remains fragmented with a number of players owning up to three liftboat units, including Hercules (3 units), Arabian Drilling Company (2 units) and Millennium Offshore (2 units).

Ezion Holdings (EZHL.SI) 17 09 July 2014

Asia Pacific The Asia Pacific market remains significantly under-penetrated, with only six units operating in the region. Ezion is the largest owner with three units deployed. COSL has two liftboat units, but these are likely considered to be non-core assets to the company in our view. We see scope for liftboat supply in Asia Pacific to grow to more than 80 units In Figure 35 we compare the number of liftboats with the number of oil production platforms in each region. The platform-to-liftboat ratio in Asia Pacific is 282, significantly above that of US Gulf of Mexico (21), West Africa (17) and Middle East (32). Assuming that the market can sustain a platform-to-liftboat ratio of below 20 globally, this would imply that there is scope for the number of liftboats in Asia Pacific to grow by about 80 units.

Figure 35: Asia Pacific liftboat market remains under penetrated No. of liftboats No. of platforms Ratio of platforms per liftboat US Gulf of Mexico 144 3,047 21 West Africa 36 617 17 Middle East 32 1,037 32 Asia Pacific 6 1,691 282 Source: Clarksons, IHS-Petrodata, Credit Suisse estimates Global liftboat order book at 12% of fleet, with bulk of supply addition in Asia Pacific Based on the announced newbuild liftboat plans, we expect the global liftboat fleet to grow by 30 units by 2016, representing 12% of the current fleet. Of these 30 vessels, 26 units will be deployed to serve the oil and gas sector, while four are intended as wind turbine installation vessels. Ezion has aggressive plans to grow its liftboat fleet by nine units based on contracts secured, while Gulf Marine Service has a newbuild programme for five units. On our estimates, the bulk of the fleet expansion will be deployed in Asia Pacific, where we expect the fleet to grow by 13 units.

Figure 36: Bulk of supply addition concentrated in Asia Pacific

14 13

8 6 6 6 5

0 Asia Pacific Middle East US GoM Northwest Europe

Supply addition based on announced newbuilds

Source: Clarksons, company data, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 18 09 July 2014

Limited barriers to entry imply potential for supply to grow rapidly and significantly We believe there is potential for supply of liftboats to grow significantly, due to the low barriers to entry to the market. In our view, the most significant barrier to entry would be the stringent pre-qualification process and rigorous operational standards required by the NOCs. While this might deter new entrants from expanding into the liftboat market, it should not be a major impediment for existing operators of other offshore assets (e.g., drilling rigs) from diversifying into the liftboat segment. On the other hand, the low capital cost required in building a liftboat relative to a drilling rig, as well as significant number of yards which can build to third-party liftboat designs present significant opportunities for new entrants to build up a fleet rapidly. Capital cost low compared to drilling rigs We estimate that a newbuild liftboat to be deployed outside US Gulf of Mexico costs US$60-80 mn, based on recent contracts announced by Triyards. According to Gulf Marine Service, a large liftboat will cost US$85-89 mn, a mid-sized liftboat will cost US$65 mn, while a small vessel will cost US$37.5-51.0 mn. While slightly higher than offshore support vessels, this is significantly lower than the capital required to invest in a newbuild jackup, which would cost about US$180 mn at a Chinese yard and US$220 mn at Keppel.

Figure 37: Capital cost low compared to drilling rigs

250

200

150

100

0 3,500DWT PSV Mid-sized Liftboat Keppel B Class Jackup rig

Source: Company data, Credit Suisse estimates Wide choice of yards with capabilities and third party liftboat designs A significant number of shipyards have the capability to construct liftboats as they require less engineering complexity compared to drilling rigs. In Figure 38 we show the breakdown of the liftboat construction market. Halimar Shipyard in the US is the most active yard in the construction of liftboats, with customers including AMC liftboats, Hercules Offshore, Offshore Liftboats, OMC and Seacor Marine. Outside of the US, yards which have delivered liftboats include Triyards (Vietnam) and Lamprell (UAE). Apart from the Levingston 320E design that is used by Ezion, there are third party liftboat designs available from GustoMSC and Triyards (BH-335 and BH 450).

Ezion Holdings (EZHL.SI) 19 09 July 2014

Figure 38: Global liftboat construction market share, 2005-11

Other, 8 Gulf Island Marine, 2

Rodriguez Boatbuilders, 2 Halimar Shipyard, 14

Elevating Boats, 3

Lamprell, 3 Triyards, 8

Bollinger Shipyard, 4 Gulf Marine Conrad Services, 6 Industries, 6

Source: Infield Systems Pre-qualification process with NOCs and rigorous operational standards The lengthy pre-qualification process with many NOCs makes it more difficult for new entrants to penetrate the market. While this might deter new entrants from expanding into the liftboat market, it should not be a major impediment for existing operators of other offshore assets (e.g., drilling rigs) from diversifying into the liftboat segment. Significant new entrants in Asia Pacific liftboat market Our channel checks indicate the potential for significant new entrants into the Asia Pacific liftboat market in the coming years. Established liftboat operators globally such as Hercules and GMS are exploring the possibility of expanding into the Asia liftboat market, while Singapore-based offshore and marine companies ASL Marine and Falcon Energy have indicated the possibility of diversifying their product offering to include liftboats.

■ Hercules Offshore: Hercules Offshore noted that the Asia Pacific liftboat market in relatively new and they are looking to supply a few liftboats to the region in the medium term. However, they noted that they have not seen significant demand from customers in the region and the barriers to entry are low.

■ Gulf Marine Services: Following its IPO on the London Stock Exchange in March 2014, GMS is looking into new markets including West Africa and Asia Pacific, and is building a fleet of three mid-sized liftboats that could be deployed in these regions.

■ Vahana Offshore/Eversendai: Malaysia based Vahana Offshore is constructing two liftboats at Eversendai's yard in UAE.

■ ASL Marine: Management of ASL Marine indicated that they might be building a few liftboats on a speculative basis, which can thereafter be sold or chartered out.

■ Falcon Energy: Management of Falcon Energy indicated that they might be acquiring some liftboat assets to grow its Marine business.

■ Atlantic Navigation: In May 2014, UAE-based Atlantic Navigation ordered a newbuild liftboat with a Chinese shipyard for US$46 mn, and is looking to deploy the unit in Malaysia.

Ezion Holdings (EZHL.SI) 20 09 July 2014

Figure 39: GMS mid-size liftboat with potential deployment in Asia Pacific

Source: Gulf Marine Services

Ezion Holdings (EZHL.SI) 21 09 July 2014 Demand has peaked for Australian marine supply base In close proximity to oil and gas projects in Australia's Northern Territory, Ezion's 36-ha marine supply base at Port Melville could serve LNG projects in the region. However, rising costs have driven Australian greenfield projects to the top end of capex per metric tonne of liquefaction capacity globally, which may lead to a slowdown in new projects sanctioned. Indeed, GDF Suez and Santos have recently abandoned their plans for the US$5.1 bn Bonaparte FLNG development. As a result of lower activity in the region and higher fixed operating cost, peer Mermaid Marine saw a 17% YoY decline in its EBITDA from the Dampier Supply Base in CY2H13. As such, we see limited scope for upside earnings surprise from Port Melville, with a potential spinoff the most likely outcome. Developing Port Melville Marine Supply Base to support oil and gas projects in Northern Territory Ezion operates a 36-ha marine supply base in Northern Territory of Australia, near to Darwin. It lies along the main passage for marine activities in Northwest Australia, Papua New Guinea and East Timor, and is in close proximity to oil and gas projects in Australia Northern Territory. With a maximum water depth of 14m, basic infrastructure available, and limited no union issues, management expects Port Melville to augment Darwin Port which is facing overloading challenges. Ezion's revenue from Port Melville could come from (1) rental of storage spaces, (2) handling fees, and (3) other income for services such as cleaning, repair and maintenance. Port Melville has been recognised as a security regulated port by the Australian Government under the Maritime Transport and Offshore Facilities Securities Act 2003, paving the way for commencement of phase two development that includes export of local products and a wide range of port services in support of the oil and gas industry.

Figure 40: Location of Ezion's marine supply bases in close proximity to offshore oil and gas fields in North Western Australia & Northern Territory of Australia

Source: Google

Ezion Holdings (EZHL.SI) 22 09 July 2014

Figure 41: Port Melville (deep water port) Figure 42: Port Melville (deep water port)

Source: Company Source: Company Australia oil and gas capex has peaked In the report "Australia E&P: The hangover begins" on 7 October 2013, Credit Suisse analyst David Hewitt noted that the challenges for continued growth are intensifying. From a historically slow pace of LNG development, Australia suddenly lit up with multiple proposed LNG developments from 2006. In the space of a few short years, eight greenfield LNG projects were sanctioned in Australia (Pluto, QCLNG, APLNG, GLNG, Gorgon, Wheatstone, Ichthys, and Prelude) with a cumulative capacity of 64 mtpa, more than three times the national nameplate capacity prior to the sanctions.

Figure 43: Australia—pre and post 2007 LNG capacity / capacity under construction

90 MTpa 80

0 NWS B-U Pre '07 capacity Pluto Gorgon Wheatstone QCLNG APLNG GLNG Ichthys Prelude

Source: Company data, Credit Suisse estimates It now appears that building multiple LNG projects at the same time can cause cost pressure A toxic combination of a strengthening Australian dollar increasing raw material costs and a protected domestic labour pool has driven current Australian greenfield projects to move to the top of the global pile for capex per metric tonne of liquefaction capacity. Figure 44 highlights the chronological order of project sanctions (from left to right) with the initial and current total project capex forecast (from the developer)—where the average cost per MT is US$3,000. As a comparison, Bayu-Undan LNG (Darwin LNG) went into production in 2006 at a unit capex of US$800 /MT (with a breakeven cost of just US$2.2/ mmbtu)

Ezion Holdings (EZHL.SI) 23 09 July 2014

Figure 44: Australian LNG projects under construction—unit capex forecasts

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

- Gorgon PNG LNG QCLNG GLNG Prelude APLNG Wheatstone Ichthys

original current Average (current)

Source: Company data As yet un-sanctioned Australia LNG projects at the top of the breakeven curve: Pushing Australian projects to the top of the global LNG As a result of the cost escalations as yet un-sanctioned Australian LNG projects sit at the cost curve top of the break-even curve (please see Figure 45)—with greenfield projects such as Sunrise requiring US$10/mmbtu (FOB basis) to generate a 12% IRR.

Figure 45: Global LNG project breakeven analysis

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

Pluto

Abadi

Arrow

Yamal

Kitimat

Darwin

Ichthys

Browse

Sunrise

Prelude

QCLNG

AP LNG AP

Tanzania

PNG LNG PNG Shtokman

Gladstone

Wheatstone

Tangguh T3 Tangguh

Sabine Pass Sabine

Gorgon T1-3 Gorgon

Mozambique

Pluto LNG T2 LNG Pluto

North West Shelf West North Shell LNG Canada LNG Shell

Source: Company data, Credit Suisse estimates Focus on execution rather than project sanctions While multiple projects are talking about expansions, including Gorgon T4 and an Arrow fed expansion at one of the three projects on Curtis Island along with project proponents suggesting possible sanctions for new projects, but in reality given timeline extensions and capex increases Credit Suisse believes that the real management focus will be to get the projects to first gas without further delays or cost increases. Bonaparte FLNG project abandoned In June 2014, GDF Suez and Santos abandoned their plans for the US$5.1 bn Bonaparte FLNG development in the Timor Sea, as pre-front-end engineering and design (pre-FEED)

Ezion Holdings (EZHL.SI) 24 09 July 2014 studies indicated that the project does not meet the companies' commercial requirements. While FLNG remains an option for Bonaparte, the companies will focus on piping gas from the Petrel, Tern and Frigate gasfields to the Darwin or Ichthys LNG plant.

Figure 46: Northern Australian oil and gas construction projects

Source: Mermaid Marine With most other projects more than 50% complete and Browse FLNG the only new west coast LNG project with momentum, we believe demand for the marine supply base will likely slow down.

Figure 47: LNG project progress to 1Q14 % progress % time elapsed PNG 95% 90% QCLNG 84% 82% Gorgon 80% 79% GLNG 80% 72% APLNG 68% 69% Wheatstone 33% 48% Ichthys 44% 43% Prelude n.a. 41% Source: EnergyQuest Mermaid Marine Dampier supply base EBITDA fell 17% YoY in CY2H13 We believe comparisons can be made between Port Melville and the Dampier supply base operated by Mermaid Marine Australia and Dampier Port Authority. The Dampier supply base provides various support services to operations on the North West Shelf such as Gorgon, Macedon and Wheatstone. Port Melville has a larger laydown area of 38ha compared to Dampier's 17ha. Both have quite similar storage area and workshops of 5000-6200 sq m.

Ezion Holdings (EZHL.SI) 25 09 July 2014

Figure 48: Comparison between Port Melville and Mermaid Dampier marine supply base Port Melville Dampier marine supply base Max water depth (m) 14 7.5 Max laydown area (ha) 38 17 Storage area and workshops (m2) 5,000 6,200 Office space (sq m) 500 1,200 Cranes Up to 250T Up to 250T Forklifts Up to 36T Up to 32T Berth space (m) 300 415 Source: Company data Revenue at Dampier marine supply base grew from just A$28 mn in FY09 (12 month to June 2009) to A$150 mn in FY13. The growth in revenue is driven by increased activity in the region, as well as investments made by Mermaid Marine. In 2011, Mermaid Marine bought the site adjacent to the base that was previously owned by BIS industries, which boosted the land area by close to 60%. EBITDA margin has consistently been above 40% between FY09 and FY13. However, EBITDA declined 17% YoY in FY1H14 (CY2H13), as the Dampier supply base was impacted by lower drilling activity in the region which impacted utilisation across the main wharf. In addition, fixed operating cost base increased as a result of the introduction of rosters on the wharf to better meet client requirements and an increase in the number of supervisory and safety personnel employed across the base.

Figure 49: Earnings for Mermaid Marine's Dampier supply base

200 60%

180 55%

160 50%

140 45%

120 40%

100 35%

80 30%

60 25%

40 20%

20 15%

0 10% FY09 FY10 FY11 FY12 FY13 1H14

Revenue EBITDA Margin

Source: Company data, Credit Suisse estimates Spin-off most likely outcome To date, Ezion has invested about US$50 mn into the marine supply base business, an increase from US$30 mn as of December 2013. In our forecast, we expect a further US$10 mn investment in the business. We expect the Melville supply base to contribute US$20 mn and US$40 mn of revenue in 2015 and 2016 respectively, before peaking at US$100 mn in 2019, representing about 70% of the peak revenue of Dampier supply base. We assume a 35% EBITDA margin throughout, in line with the margin made by Dampier in FY1H14. Following its failed attempt to inject its Australian marine supply base business into Ocean Sky International, Ezion entered into an MoU with Ausgroup to provide marine logistics and support services in the Northern Territory and Western Australia, Australia. We expect the partnership to involve joint marketing of a combined capability to offer a broader service offering to improve end-to-end services and logistics. As management of Ezion regard the marine supply base business to be non-core, we expect the company to minimise capex and management effort in the business, with a potential spin-off as the most likely outcome in the medium term.

Ezion Holdings (EZHL.SI) 26 09 July 2014 Initiate with UNDERPERFORM Target price of S$1.80 based on SOTP valuation Our target price of S$1.80 for Ezion is derived using a SOTP comprising the following:

■ Liftboats: We value Ezion's existing fleet of liftboats using a DCF with a WACC of 9.80%. We assume 100% utilisation at current contract rates over an estimated useful life of 15 years, with no terminal value. This is equivalent to an 83% utilisation over a useful life of 25 years. The implied EV per liftboat is US$111 mn, which is about 1.5x the average cost per liftboat of US$75 mn.

■ Service rigs: We value Ezion's existing fleet of service rigs using a DCF with a WACC of 9.80%. We assume 100% utilisation at current contract rates over an estimated useful life of five years or over the current contract duration, with no terminal value. The implied EV per rig is US$56 mn, which is 1.4x our estimated asset value of a 30- year jackup.

■ Offshore logistics vessels: We apply a 7x P/E to its average 2014-16 earnings, as we expect earnings to taper off with the completion of its LNG projects in Australia, which will only be partially offset by the gradual ramp-up of Port Melville marine supply base. This would be in line with its peer Mermaid Marine, which has a larger presence in Australia.

■ Associates: We mark-to-market Ezion's equity stakes in Ausgroup, JK Tech and Charisma Energy.

Figure 50: SOTP valuation of Ezion Valuation (US$mn) Valuation (S$mn) Per share (S$) Methodology Liftboats 1,507 1,884 1.43 DCF assuming useful life of 15 years Service rigs 992 1,240 0.94 DCF assuming useful life of 5 years Offshore logistics vessels 270 337 0.26 7x normalised P/E Net debt -1,090 -1,363 -1.04 As of March 2014 Equity stake in Ausgroup 18 0.01 Mark-to-market Equity stake in JK Tech 29 0.02 Mark-to-market Equity stake in Charisma Energy 217 0.17 Mark-to-market Ezion (S$) 2363 1.80 Target price 1.80 Source: Company data, Credit Suisse estimates Scenario analysis 1: What if we extend the useful life of service rigs? In our DCF valuation, we value Ezion's service rigs assets over a useful life of five years or the current contract duration, whichever is longer. We do not believe this is overly conservative as its service rigs would be 38 years of age in five years time based on the current average age of 33 years. Figure 51 shows the age distribution of the global jackup fleet based on the year of delivery of units. Only close to 10% of the global jackup fleet is operating beyond 38 years of age. If we extend our DCF analysis to ten years rather than five years, then the estimated value of its service rig fleet increases to US$1,354,mn from US$992 mn, implying S$0.34 upside to our base case estimate. We believe this is overly aggressive as this would imply an average age of 43 years, while only 2% of the global jackup fleet is operating beyond.

Ezion Holdings (EZHL.SI) 27 09 July 2014

Figure 51: Only close to 10% of the world's jackup fleet above 38 years of age

90 79 80

60 57

50 39 41 40 29 30 24 19 21 20 20 15 15 121412 14 10 10 9 10 10 4 5 5 4 4 5 4 1 1 1 2 3 3 2 2 1 1 2 3 2 2 3 2 3 3

1979 1983 2004 2008 1963 1965 1967 1968 1969 1971 1972 1973 1974 1975 1976 1977 1978 1980 1981 1982 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1995 1998 1999 2000 2002 2003 2005 2006 2007 2009 2010 2011 2012 2013

Year of Rig Delivery

Source: IHS-Petrodata, Credit Suisse estimates Scenario analysis 2: What if we add a terminal value to the rigs? In our DCF valuation for service rigs, we do not assume a scrap value for the service rigs, which may be perceived to be conservative. In a scenario analysis where we ascribe a scrap value of US$10 mn per service rig, then the estimated value of its service rig fleet increases to US$1,072 mn from US$992 mn, implying S$0.08 upside to our base case estimate. Scenario analysis 3: What if we add in the expected value of future contracts? In April 2014, Ezion raised approximately US$155 mn which will allow the company to invest further in new assets without raising further equity for at least the next 12 months based on current business prospects. Based on an estimated newbuild liftboat cost of US$75 mn and a 75:25 debt-equity split, we estimate that Ezion will be able to grow its fleet by ten more vessels while maintaining a net gearing below 1.0x by end 2016. Assuming that all proceeds are invested in liftboats and an equity IRR of above 30% can be maintained, we estimate that each vessel will have a NPV of US$0.03, implying S$0.37 upside to our base case estimate. Scenario analysis 4: Valuing Ezion's associates Following a subscription of shares by Ezion, Charisma Energy aims to focus on providing complementary assets and services to Ezion's customers. This would be mainly in the oil & gas and energy businesses, including the provision of offshore vessels and hydro- electric power generation equipment and plants. In September 2013, Charisma secured a contract worth US$183 mn over a three-year tenure to provide a semi-submersible rig in the Andaman Sea. It has also secured a contract worth US$37 mn over 20 years to lease one set of hydro-electric generation equipment. The company made a loss of S$421,000 in 2013 and S$33,000 in 1Q14. By marking to market Ezion's equity stake in Charisma Energy, we value its holding in the company at S$217mn, representing 9% of our equity valuation of Ezion. Based on the current market price, this would imply a 7.8x P/B valuation for Charisma Energy. If we were to value Charisma Energy at book value, this would lead to a potential S$0.14 downside to our base case estimate.

Ezion Holdings (EZHL.SI) 28 09 July 2014

Crosschecking our valuation Our service rig valuation is below Transocean's sale of old jackup fleet to Shelf Drilling in 2012 In September 2012, Transocean announced an agreement to sell 38 jackup rigs to Shelf Drilling, a newly formed company sponsored equally by Castle Harlan, CHAMP Private Equity and Lime Rock Partners. The sale price of US$1.05 bn includes approximately US$855 mn in cash and US$195 mn in seller financing. Credit Suisse's US oilfield services research team estimates the average age of the jackups sold at approximately 30 years with the contracted rigs earning an average dayrate of US$97,000 and an estimated backlog US$1.5 bn. The transaction would value the assets at 0.875x our estimated cash flow of the fleet at about US$1.2 bn. EV/EBITDA at premium to peers despite aged assets Ezion is currently trading at a 2015 EV/EBITDA of 7.1x, a premium to the sector average of 6.5x. We believe this is not justified given the significantly older fleet of service rigs it owns. As shown is Figure 52, Hercules with an average jackup fleet age of 32.6 years trades at 2015 EV/EBITDA of 3.4x.

Figure 52: 2015 EV/EBITDA vs average age of jackup/service rig fleet 35 Ezion Hercules Diamond 30 Noble

25 Ensco

20 Rowan COSL 15 Aban

10 Transocean

5 Averageage of jackup fleet(years) Atwood Seadrill 0 3 4 5 6 7 8 9 10 11 2015 EV/EBITDA

Source: BLOOMBERG, IHS-Petrodata, Credit Suisse estimates Apart from Hercules, Shelf Drilling also has an old fleet of jackup rigs with an average age of its 37 jackup rigs at 33 years. Shelf Drilling currently operates across four key shallow regions: the Middle East, North Africa, and Mediterranean, Southeast Asia, India and West Africa. In 2013, Shelf Drilling had adjusted revenue of US$1.2 bn and adjusted EBITDA of US$468 mn. As at 27 May 2014, contract backlog stands at US$3.4 bn with an average contracted period per rig of over two years. In June 2014, Shelf Drilling announced its intention to proceed with an initial public offering on the London Stock Exchange. According to its regulatory filing, Shelf Drilling was targeting a minimum offer size of US$500 mn, split between the sale of US$250 mn new shares as well as an unspecified amount of existing shares held by current investors. Assuming that at least 25% of the company's shares will be listed, it will imply a market capitalisation of at least US$2 bn. With a net debt of US$698 mn as of March 2014, this would imply an EV/EBITDA of close to 5.8x. In July 2014, the company announced that it has decided not to proceed with the IPO due to "challenging public market conditions".

Ezion Holdings (EZHL.SI) 29 09 July 2014

Figure 53: Ezion is trading at 2015 EV/EBITDA of 7.1x, above the sector average of 6.5x

12.0

10.0 10.0

7.8 7.7 7.6 8.0 7.1 6.7 6.5 6.3 6.0 5.8 6.0 5.5 5.5 5.4

4.0 3.4

2.0

0.0

Source: BLOOMBERG, company data, Credit Suisse estimates Implied liftboat valuation above Hercules and Gulf Marine Services For investors keen on exposure to the liftboat segment, we calculate the implied P/E of Ezion's liftboats business by using its market capitalisation and subtracting our estimated value for its other businesses. On our estimates, Ezion's liftboat is trading at a 2015 P/E of 10.0x, above its peers Hercules and Gulf Marine Servies.

Figure 54: Implied P/E of Ezion's liftboat business at premium to peers

12.0

10.0 10.0 8.4 8.0 6.7

6.0

4.0

2.0

0.0 Ezion liftboat Gulf Marine Services Hercules Offshore

2015 P/E

Source: BLOOMBERG, Company data, Credit Suisse estimates Why P/E may be irrelevant Most service rig contracts will end by Dec-2018 While Ezion's 2015 P/E of 7.4x may appear attractive, we think P/E is not as relevant as close to 40% of Ezion's earnings are from service rigs which are likely to be non-recurring beyond their useful life. As shown in Figure 56, all of Ezion's wholly owned service rigs will have their contracts end by Dec-2018, with the exception of Unit 18 (option through June 2019) and Unit 35 (contract through Dec-19).

Ezion Holdings (EZHL.SI) 30 09 July 2014

Figure 55: Ezion appears cheap on 2015 P/E of 7.4x

16 15.1

14 12.4 12 11.4 10 9.6 10 8.7 8.7 8.7 8.4 7.5 7.4 7.4 8 6.9 6.7 6

Source: BLOOMBERG, Company data, Credit Suisse estimates

Figure 56: Service rig earnings not recurring Start Date End Date Duration Option 2014 2015 2016 2017 2018 2019 2020 (years) (years) Service rigs Unit 7 Oct-12 Sep-17 5.0 Unit 10 Nov-12 May-17 4.5 Unit 11 Nov-12 Oct-16 2.0 2.0 Unit 12 Sep-13 Sep-16 2.0 1.0 Unit 14 Jan-13 Dec-16 4.0 Unit 15 Apr-13 Mar-17 4.0 Unit 16 Mar-13 Feb-18 3.0 2.0 Unit 18 Jul-14 Jun-19 3.0 2.0 Unit 23 Dec-13 Nov-18 3.0 2.0 Unit 25 Nov-13 Nov-16 3.0 Unit 27 Jul-14 Jun-18 4.0 Unit 32 Apr-15 Mar-18 3.0 Unit 33 Oct-15 Sep-18 3.0 Unit 34 Oct-15 Sep-18 3.0 Unit 35 Jan-15 Dec-19 5.0

JV Unit 8 Dec-11 Nov-15 2.0 2.0 Unit 20 Feb-13 Jan-20 5.0 2.0 Unit 21 Feb-13 Jan-20 5.0 2.0 Unit 26 Jan-14 Dec-20 5.0 2.0 Unit 29 Jul-14 Jun-18 4.0 1.0 Note: Brown bars = firm contracts; blue bars = options. Source: Company data, Credit Suisse estimates

Ezion Holdings (EZHL.SI) 31 09 July 2014

Valuation table

Figure 57: Offshore services valuation table Current Target Mkt Cap Ave 3M PE (x) PB (x) ROE (%) EV/EBITDA (x) Div Yield (%) Rating price price (US$m) T/O (mn) 13A 14E 15E 13A 14E 15E 13A 14E 15E 13A 14E 15E 14E Ezion Holdings U 2.10 1.80 2,213 9.8 10.3 10.5 7.4 2.5 1.9 1.6 20.0 17.5 21.1 17.0 10.5 7.1 0.0

Ezion Holdings (EZHL.SI) 32 09 July 2014

Companies Mentioned (Price as of 07-Jul-2014) ASL Marine (ASLM.SI, S$0.675) Alam Maritim (ALMT.KL, RM1.64) Atwood Oceanics, Inc. (ATW.N, $51.6) AusGroup (AUSG.SI, S$0.455) Bumi Armada (BUAB.KL, RM3.3) CN Rongsheng (1101.HK, HK$1.76) COSCO Corporation (Singapore) Ltd (COSC.SI, S$0.72) CSICL (601989.SS, Rmb4.86) CSSC Holdings (600150.SS, Rmb21.91) Charisma Energy (CHAR.SI, S$0.051) Dialog Group Bhd (DIAL.KL, RM3.85) Diamond Offshore Drilling, Inc (DO.N, $48.79) Dyna-Mac Hldg (DMHL.SI, S$0.375) Ensco Plc. (ESV.N, $53.8) Ezion Holdings Ltd (EZHL.SI, S$2.1, UNDERPERFORM, TP S$1.8) Ezra Holdings Ltd (EZRA.SI, S$1.245) Falcon Energy Gr (FEGL.SI, S$0.39) GDF Suez (GSZ.PA, €19.945) GZ Shipyard (0317.HK, HK$13.728) GZ Shipyard (600685.SS, Rmb17.14) Gulf Marine (GMS.L, 152.0p) Hercules Offshore (HERO.OQ, $4.07) Hyundai Heavy Industries (009540.KS, W176,000) Hyundai Mipo Dockyard (010620.KS, W147,500) IHI (7013.T, ¥471) JK Tech Holdings (JKTL.SI, S$0.68) Kawasaki Heavy Industries, Ltd. (7012.T, ¥409) Keppel Corporation (KPLM.SI, S$10.82) Lamprell (LAM.L, 155.0p) Malaysia Marine and Heavy Engineering Holdings Bhd (MHEB.KL, RM3.81) Mermaid Marine Australia (MRM.AX, A$2.05) Mermaid Maritime (MMPC.SI, S$0.46) Mitsubishi Heavy Industries (7011.T, ¥660) Nam Cheong (NMCG.SI, S$0.44) Noble Corporation (NE.N, $32.34) Ocean Rig UDW Inc (ORIG.OQ, $18.5) Omnicom Group Inc. (OMC.N, $72.65) Pacific Drilling (PACD.N, $9.89) Pacific Radiance (PACI.SI, S$1.39) Petronas Gas (PGAS.KL, RM24.6) Rowan Companies (RDC.N, $31.61) Samsung Heavy Industries (010140.KS, W26,900) Santos Ltd (STO.AX, A$14.26) Seadrill (SDRL.N, $39.6) Sembcorp Industries Limited (SCIL.SI, S$5.4) Sembcorp Marine Ltd. (SCMN.SI, S$4.08) Swiber (SWBR.SI, S$0.555) Transocean Inc. (RIG.N, $43.94) Triyards (TRIY.SI, S$0.65) UMW Oil & Gas (UMOG.KL, RM4.21) Wah Seong Corporation (WAHE.KL, RM1.9) Yangzijiang Shipbuilding (Holdings) Ltd (YAZG.SI, S$1.08)

For other companies mentioned, refer to Figure 57 on page 32.

Disclosure Appendix

Important Global Disclosures I, Gerald Wong, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total

Ezion Holdings (EZHL.SI) 33 09 July 2014 return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10- 15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 44% (54% banking clients) Neutral/Hold* 39% (49% banking clients) Underperform/Sell* 13% (48% banking clients) Restricted 3% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Ezion Holdings Ltd (EZHL.SI) Method: Our target price of S$1.80 for Ezion is derived using a SOTP comprising (1) Ezion's existing fleet of liftboats and service rigs using a DCF with a WACC of 9.80% (2) Offshore logistics vessels: We apply a 7x P/E to its average 2014-16 earnings (3) Associates: We mark-to- market Ezion's equity stakes in Ausgroup, JK Tech and Charisma Energy. Risk: Key risks would include (1) stronger than expected order wins and (2) successful disposal of its Marine supply base business at a premium

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (EZHL.SI, ATW.N, BUAB.KL, DO.N, HERO.OQ, 009540.KS, 010620.KS, KPLM.SI, NE.N, ORIG.OQ, PACD.N, 010140.KS, SDRL.N, SCMN.SI, RIG.N, UMOG.KL, YAZG.SI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (EZHL.SI, ATW.N, DO.N, HERO.OQ, 009540.KS, ORIG.OQ, 010140.KS, SDRL.N, SCMN.SI, UMOG.KL) within the past 12 months.

Ezion Holdings (EZHL.SI) 34 09 July 2014

Credit Suisse provided non-investment banking services to the subject company (HERO.OQ, 009540.KS, 010620.KS, KPLM.SI, NE.N, RIG.N, YAZG.SI) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (HERO.OQ, 009540.KS, ORIG.OQ, SDRL.N, UMOG.KL) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (EZHL.SI, ATW.N, DO.N, HERO.OQ, 009540.KS, ORIG.OQ, 010140.KS, SDRL.N, SCMN.SI, UMOG.KL) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (EZHL.SI, ATW.N, BUAB.KL, DO.N, HERO.OQ, 009540.KS, 7013.T, 7012.T, MHEB.KL, 7011.T, ORIG.OQ, PACD.N, 010140.KS, SDRL.N, SCMN.SI, UMOG.KL, YAZG.SI) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (HERO.OQ, 009540.KS, 010620.KS, KPLM.SI, NE.N, RIG.N, YAZG.SI) within the past 12 months As of the date of this report, Credit Suisse makes a market in the following subject companies (ATW.N, DO.N, ESV.N, HERO.OQ, NE.N, ORIG.OQ, PACD.N, RDC.N, SDRL.N, RIG.N). Credit Suisse may have interest in (BUAB.KL, MHEB.KL, UMOG.KL) As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (ESV.N, NE.N, RIG.N). Credit Suisse has a material conflict of interest with the subject company (7013.T) . Credit Suisse AG is acting as an advisor to the shareholders of Ionbond AG in the potential acquisition by IHI Corporation and is also a shareholder of Ionbond AG.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (EZHL.SI, ATW.N, BUAB.KL, COSC.SI, DO.N, ESV.N, HERO.OQ, 009540.KS, 010620.KS, 7013.T, 7012.T, KPLM.SI, MHEB.KL, MRM.AX, 7011.T, NE.N, ORIG.OQ, PACD.N, RDC.N, 010140.KS, SDRL.N, SCIL.SI, SCMN.SI, RIG.N, UMOG.KL, YAZG.SI) within the past 12 months Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml. The following disclosed European company/ies have estimates that comply with IFRS: (SDRL.N). Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (ATW.N, BUAB.KL, DO.N, HERO.OQ, 009540.KS, KPLM.SI, ORIG.OQ, SDRL.N, RIG.N, UMOG.KL) within the past 3 years. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Credit Suisse AG, Singapore Branch ...... Gerald Wong, CFA

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683.

Ezion Holdings (EZHL.SI) 35 09 July 2014

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