1 December 2014 Triyards Holdings Ltd. - Phillip Capitalinternetfileserver.phillip.com.sg/POEMS/Stocks/... · most advanced construction and pipelay vessels globally in its class,

1 December 2014

MCI (P) 019/11/2014 Ref. No.: SG2014_0193

Triyards Holdings Ltd. Demand for SEUs will drive the top-line despite falling oil prices SINGAPORE | OIL & GAS OFFSHORE MARINE| INITIATION

Rating: Buy

Triyards (ETL) is headquartered in Singapore and listed on the Singapore Mainboard Stock exchange. Triyards provides integrated full-service engineering, fabrication and ship construction solutions for the global offshore and marine industries with a focus in shipbuilding, ship conversions, medium to heavy fabrication works, ship repair and now venturing into the specialized drilling rigs and mobile offshore production units (MOPUs). Their main focus remains on sophisticated service platforms and equipment that can tackle even the most complex offshore projects. They maintain a lead position in the fabrication of self-elevating units (SEUs) in Southeast Asia. Expansion into aluminum shipbuilding capabilities through the acquisition of AUD 23.3 million Strategic Marine Ltd. Triyards acquired Strategic Marine, a shipbuilding & fabrication company, for A$23.3m in late October. The acquisition will allow Triyards to tap on geographically bigger market for growth as well as diversifying their business capabilities in the future. Investment Merits

Front-runners in SEA – they are the market leader and one of the very few shipyards in SEA capable of building highly sophisticated and advanced liftboats and OSVs.

A solid track record in building specialized OSVs and SEUs – has built one of the world’s largest liftboat (BH450) and also world’s largest offshore support vessel (Lewek Constellation).

Venturing out to Global markets – planning to tap into the Middle Eastern and West African markets to increase their geographical reach.

Experienced management team – combined experience of at least 100 years in the offshore marine industry.

Value Synergies from new acquisition – will help them leverage on diverse clientele base of Strategic Marine plus the close proximity of the two Vungtau-Vietnam yards will help expand their production capabilities.

Designed their own drilling rig TDU-400 – Aggressively marketing TDU-400 jack-up rig and any contract would bring around US$200m of revenues to the company.

Orderbook remains strong – Estimated net orderbook stands at around US$325 million as of Q1 FY2015.

Investment Action We are positive on Triyards for being the market leader in building advanced SEUs and OSVs. Demand of SEUs will remain intact despite falling oil prices. Falling oil prices will reduce the incentive for deep/ultra-water exploration and production, while at the same time increase incentive for shallow water oil production – where SEUs are used. In addition the offshore infrastructure and platforms in such fields are aging, and the need for maintenance and servicing would eventually drive up demand for SEUs, as they provide the cheapest way to service such production platforms. On that basis we initiate our coverage on Triyards with a "Buy" rating, in view of its investment merits and solid growth potential. Taking a deep discount of more than 30% to its peer’ average of 10.6x we get 7.0x Forward PE. Applying that to 14c FY15F EPS (post-acquisition adjusted in SGD cents), we value Triyards at S$0.98. This implies at least 50% upside from the last closing price.

Triyards Holdings Ltd. 1 December 2014

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Financial Result and Highlights Softer Result for the FY2014 Triyard’s revenue declined in the FY14 to US$269m (-2.4% YoY). The decrease in revenue was due to the lower revenue recognition from the last stage completion of the subsea construction vessel, Lewek Constellation, and lower than expected contract wins. Revenue recognition of vessels are done under the percentage of completion method and around 80% of it is usually recognized in the middle stage of construction while the initial and last (sea trial) only recognizes 10% each. Net Profit declined to US$27m (-15.2% YoY) while the Gross Profit improved to US$52m with Gross margin at 19.3%. The difference in YoY change of the Net and Gross Margins was mainly due to higher administration cost and the increased in the effective tax rate. Higher admistrative cost was due to the increased effort to market their product in the international market while the increased taxes are due to the reduction in tax incentives under the Vietnam’s investment scheme. Source: PSR

Triyards generated -US$5.46m of Free Cash Flow from increased working capital and capex needs. Net Gearing remains stable although at higher levels of around 51%. But around 94% of these borrowings are related to working capital requirements and in form of short term bank term loans. Source: PSR


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Orderbook Is expected to grow further Triyards orderbook stands at around US$325m providing a solid visibility for next 18-22 months. The current backlog includes 6-7 SEUs at different stages of completion and at least 1 OSV at the intial stage of completion. Taking the percentage of completion estimation into account we believe that around 2/3 of this orderbook will be recognized in the FY2015. We also estimate that around 1-2 more contracts could be added considering the healthy tendering activity and that around 6 more contracts are under management negotiation. Taking a very conservative approach we did not include any potential contract win for its TDU-400 Jack-up Rig that could significantly increase the Revenue assuming a price of US$200m/unit. Earnings Forecast Based on the orderbook estimation plus taking into account the contribution from its new acquisition of Strategic Marine, we estimate the Net Profit for the FY2015 to increase by 34.5% to US$36m. we also estimate the Net Margins to increase in FY2015 to 12.1% (pre-acquisition). Source: PSR


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Table of Contents Business Overview....................................................................................................................................................................... 5

Specialized Shipbuilding ........................................................................................................................................................... 5

Rig Building............................................................................................................................................................................... 5

Offshore Engineering, Construction and Fabrication .............................................................................................................. 5

Ship Repair, Maintenance and Conversion ............................................................................................................................. 5

Business Overview of Strategic Marine ................................................................................................................................... 6

Overview of SEUs market ............................................................................................................................................................ 7

Self Elevating Unit (SEUs) ......................................................................................................................................................... 7

Global Demand for SEUs considering falling Oil Prices ............................................................................................................ 7

Growth of SEUs ........................................................................................................................................................................ 7

Investment Highlights ............................................................................................................................................................... 10

Definitive Edge for Triyards in SEUs ....................................................................................................................................... 10

Strategic Location in Vietnam ................................................................................................................................................ 10

Proven track record to build construction vessels and OSVs ................................................................................................ 10

Synergies with Ezra ............................................................................................................................................................... 11

Expand Production Capabilities ............................................................................................................................................. 11

Establishing prescence in New Market .................................................................................................................................. 11

Acquisition led growth strategy/ Synergies from new acquisition ........................................................................................ 11

Key Risk: Greater Competition expected in Liftboat Market ................................................................................................. 12

Facilities ..................................................................................................................................................................................... 13

Peers Review ............................................................................................................................................................................ 16

Valuation ................................................................................................................................................................................... 18

Appendix ................................................................................................................................................................................... 23

Triyards Overview .................................................................................................................................................................. 23

Board of Directors .................................................................................................................................................................. 24

Management Team ................................................................................................................................................................ 27


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Business Overview Specialized Ship Building Triyards offers an integrated solution to the offshore marine and industrial sector globally. With the availability of skilled labor, exclusive designs, engineering capabilities and strategically located yards, Triyards focus more towards the sophisticated vessel construction. The group has a strategic focus on the construction of advanced self-elevating units (SEUs) with its exclusive designs. The group has delivered seven SEUs since 2007. The Group's new building capabilities include the ability to build technologically advanced construction vessels (OSCVs) and offshore support vessels (OSVs). The Group also completed the construction of the Lewek Constellation, an ice-class, deepwater multi-lay vessel with 3,000 MT heavy-lift capability that is among the most advanced construction and pipelay vessels globally in its class, which was delivered in FY2014. The Lewek Constellation was also the largest ship hull to be launched into the water by airbags in the world. Some of their sophisticated, popular and state of the art SEUs model include BH 300-L4T, BH335, BH336 L4P, BH450. Rig Building Triyards expertize in the niche sector in SEUs and sophisticated new builds has spurred the Group to expand its business line to become one of only three Singapore yards able to design and build its own proprietary drilling jack-ups with the introduction of the new Premium Class 400 HPHT (high pressure, high temperature), the TDU-400. The TDU-400 is designed to capitalize on the most advanced drilling systems and equipment available today. Designed to be 'lighter weight' without compromising operating performance, the TDU-400 is competitively priced and will help Triyards diversify their vessel making ability to a whole new level. Offshore Engineering, Construction and Fabrication In addition to the new build and repair related scopes of work, Triyards expertize also extends to customizing of onshore and offshore fabrication work. Since 2005, the Group specialized in medium to heavy industrial works, ranging from steel fabrication to electrical installation right through to equipment manufacturing services. The scope of services also entails offshore engineering construction of equipment such as modules for FPSO (floating production, storage and offloading) vessels, platform jackets, catenary anchor leg mooring (CALM) buoys, heavy-duty offshore crane structures and large A-frames. Ship Repair, Maintenance and Conversion With fully equipped facilities and a highly qualified work force, the three Vietnam yards focus on afloat ship repaired projects and up slip - dry docking projects. With their highly experienced team, they have the ability to handle a variety of repair and conversion works, not restricting to machinery and electric requirements. Being the only yard in Vietnam with a dock pit and situated along the South China Sea further enhances their competitiveness.

Source: Company website




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Business Overview of Strategic Marine Strategic Marine is a global shipbuilder, engineering, construction and service provider with established shipyards in Australia, Singapore and Vietnam. It is a dynamic Western Australian-owned shipbuilding and engineering company with an international outlook and a track record in producing quality, high performance vessels for markets across the globe. The Company has produced more than 360 quality craft, which include Government high-speed patrol boats, offshore oilfield service vessels, harbor and towage vessels, passenger vessels as well as commercial fishing boats. Strategic Marine’s capabilities have expanded over the years to offer larger, purpose-built and designed steel vessels. The Company also offers maritime solutions to clients, including Refit and Repair, Project and Finance Management, and Training and Logistics services. Strategic Marine can provide a wide variety of design, construction and fabrication services to clients, whether it is detailed construction plans, stability testing or Classification Society logistics. It has designed and built Crew Boats for the offshore Oil & Gas Industry and have introduced innovative designs and technology into the Crew Boat market. Strategic Marine’s marine structures, includes projects such as Floating Dry Docks, Floating Pontoon/berths and a variety of marine related infrastructures. It has built a strong reputation in the Oil and Gas sector, delivering over 40 offshore service vessels since 2001. Its record as a builder of highly effective military and paramilitary patrol boats with speeds of over 52 knots is unparalleled. To date, the Company has completed over 260 Patrol Vessels for Australian, Nigerian, Malaysian and Singaporean Government agencies. Source: Company website



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Overview of SEUs market SEU’s (Self-elevating unit) A Self Elevating Unit (‘‘SEU’’) is an offshore service platform with large open deck space, jack-up legs, cranes and living quarters that can be utilized to perform a broad spectrum of services for the oil and gas and renewable sectors throughout the offshore energy lifecycle. The SEU jacks up next to offshore oil and gas platforms and can be used for various purposes. These services include repairs and maintenance of production platforms, well servicing, well intervention activities and temporary housing. SEUs are designed to cater to a range of offshore assets and equipment such as drilling products and to support inspection, maintenance, repair, diving and construction activities. SEUs are mostly suitable for shallow water and the operating depth varies between 20-100+ meters. Global demand for SEU considering falling Oil Prices High fluctuations in the level of oil and gas prices can significantly affect a companies’ capital expenditures on exploration, development and drilling activity, but the operating expenditures are usually more resilient to oil price fluctuations. Operating expenditure includes spending related to well intervention, maintenance, logistics, supply, and repair work on installations during the production and development phase of the field lifecycle, each of which are important in maintaining production and therefore tend to be relatively stable compare to the exploration activities even during the low times. We believe that the demand for SEUs will remain stable, if not increase, due to the following reasons:

Shallow water offshore fields remains a major source of oil production and with the enhancement in technology and recovery methods, the demand of SEUs for such field will remain high due to lower production cost than deep and ultra-deep water alternatives especially now when oil prices are taking free-fall;

Ageing offshore infrastructure and platforms in developed shallow water regions requires extensive maintenance and upgrading in order to maintain production; and SEUs can provide the cheapest method to service such platforms.

Growing need for maintenance of offshore renewables especially in the North Sea, where SEUs are a cost effective solution.

Increased in supply of oil due to shale oil will reduce the capex in the deep to ultra-water fields which will pave way for more capex for the servicing of the existing shallow water fields.

Growth Prospects of SEUs Until recently liftboats were mainly used in oil & gas market in the Gulf of Mexico where they were mostly deployed for shallow water jobs due to their lower down time and stable elevated work platform. But now such self-elevating and self-propelling state-of-the-art vessels are gaining foothold among key operators in other parts of the world. Southeast Asian market has remained the most underpenetrated market in terms of the number of liftboats available per platform. According to research data found on Triyards Prospectus, the ratio of SEUs to platforms in North America works out to be 1:14 whereas in South-east Asia, the Middle East and West Africa, it stands at 1:60



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Source: Company Prospectus

Another study done by Douglas Westwood (Source: GMS Prospectus) suggests that the ratio of liftboats to platforms in Southeast Asia is 1:215 while a similar study by Infield Systems (Source: GMS Prospectus) suggested that the same ratio is 1:1680.

Source: Douglas Westwood, Gulf Marine Services Prospectus According to Douglas-Westwood report (Source: GMS Prospectus), demand of SEUs in Southeast Asia, is expected to increase by 8.5%, driven by well intervention and EOR requirements. Accordingly, new vessels will be required to enter the region to satisfy demand. In the MENA region numerous vessels are unsuited to the requirements of well intervention work, further compounding the under-supply of vessels in the region. In Northwest Europe, vessel demand in the oil and gas sector is expected to recover, with any spare capacity being absorbed by 2016. There is a case for new vessels to enter the region, either through the spot market or via new-builds. In West Africa, demand is expected to exceed vessel supply from 2015 to 2020, driven by well intervention and topside O&M. Currently, 11 out of 30 vessels in West Africa are unable to access 66% of platforms due to water depth restrictions, according to Douglas-Westwood Ltd. Report (Source: GMS Prospectus). SEUs can be used in the region to perform many activities:

Well Intervention – consists of services (coiled tubing, pumping, workover, subsea landing string and other services) to maintain production levels in the primary and secondary phases of production.

Inspection/Repair/Maintenance (O&M) – consists of the maintenance, modification and operation of platforms during the production phase of the offshore field lifecycle.

Construction support – is principally driven by green-field installations of oil and gas and wind production platforms.

EOR – consists of the injection of foreign components (e.g., chemicals) to recover a larger proportion of the remaining oil at the final stages of the field life (i.e., the tertiary phase of production).

Decommissioning – as offshore O&G fields approach their end-of-life it becomes necessary to decommission the associated infrastructure and SEUs provide a relatively inexpensive option for that.


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Well intervention and Inspection/Repair/Maintenance in the MENA region, North Sea and Southeast Asia are expected to remain the largest markets for SEUs due to operators seeking to maintain production profiles plus an ageing platform population, while EOR (Enhanced Oil Recovery) is forecasted to be the catalyst for an upside beyond 2020 as field lives are extended. The addressable vessel demand days are forecasted to grow by 12,141 to 41,386 from 2013 to 2020, presenting a CAGR of 5.1 per cent.

Source: Douglas Westwood, Gulf Marine Services Prospectus Extremely low penetration rate in MENA and Southeast Asia implies vast opportunities for growth. We firmly believe that the penetration rate for such highly advanced SEUs will increase in future due to cost efficiency reasons and that will drive the growth of SEUs in these markets. The Capex within the shallow water region still remains significantly higher than the deeper waters. And now with the plunging oil prices it will further shift to shallow water as the production cost is cheaper, which further strengthens our base case.


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Investment Highlight Definite edge of Triyards in SEUs Triyards strategic focus has remained to be the construction of the self-elevating units (SEUs). It has remained to be a definitive market leader in the Southeast Asian region, with capabilities of building sophisticated and customized SEUs for their client. The group has delivered seven SEUs so far since its inception and has established a significant track record with its advanced newly-designed self-elevating units for use in deeper water that can work in depth of up to 105m. Triyards also retains the honor of building the world’s largest liftboat in its Vungtau Shipyard, Vietnam. The state-of-the-art vessel is a 3-legged, self-propelled, self-elevating general service workboat, known under the name of BH-450 model, and is suitable for operation involving harsher conditions such as in the North Sea. It is an ABS classed with Unrestricted Service and carries a Wind Farm Installation Maintenance and Repair Certification. A unique feature of this vessel is its easy deployment. Unlike other vessels of its size range, this Mobile Offshore Unit has no rack chocks. After delivering this unit, Triyards has already been awarded contracts for the same model BH450 but with variations to cater the specific needs of their client. Strategic location in Vietnam Triyards shipbuilding yards in Vietnam are located within a major shipbuilding cluster, strategically located along the South China Sea. Their shipyard facilities have sheltered fabrication facilities to allow for all year round production in all weather conditions. Their shipyard facilities in Vietnam are also able to benefit from a skilled labor force, including naval architects and engineers, with higher production efficiency, and local government support for the shipbuilding industry. They also benefit from access to lower cost labor. Plus close proximity of their newly acquired shipyard, Strategic Marine, adds more space to the existing facility where engineering and fabrication work can be further synergized with no need for long distance transportation. The two yards in the Vungtau city can be seen on the right-hand-side adding the total facility size to 281,600 sqm. Proven Track record to build highly advanced construction and OSVs Strategic location of shipyards, extensively experienced Management, and their highly trained and skilled labor has provided them a platform to design and engineer technologically advanced vessels for both construction and offshore support. They recently delivered the world’s largest OSV, Lewek Constellation, an ice-class, deepwater multi-lay vessel with 3,000 MT heavylift capability that is among the most advanced construction and pipelay vessels globally in its class. Triyards has also a proven track record in building technologically advanced, high-specification and customized offshore support vessels such as ATS and PSVs, that are larger and more sophisticated in terms of their engine capacity, bollard pull and navigational equipment. They have collaborated with reputable international ship designers to come up with vessel prototypes and have worked with reputable universities to carry out model testing for their vessels. The Group’s ability to design and fabricate offshore equipment such as offshore cranes, winches and A-frames and other offshore equipment installed on offshore vessels, will help them offer cost-effective solutions and timely delivery for their projects. We believe that with high level of expertise and customization capabilities in constructing technologically advanced vessels, and the track record in managing construction and delivery schedules, Triyards is well positioned to remian the market leader in Southest Asia.

Source: Infield Systems Ltd., Company Prospectus Source: Company website



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Synergies with Ezra Ezra currently holds around 67% of stake of the ordinary share capital. The Ezra Group is a major global offshore contractor and provider of integrated offshore solutions to the oil & gas industry. Triyards stands a good chance of realizing synergies as a part of Ezra Group, which will allow them to tap into Ezra’s clientele base as well. Plus any project work taken by Ezra could also be awarded directly to Triyards. They have already built number of OSVs and SEUs to date for them and have also undertaken projects to fabricate and install certain offshore equipment. Both companies can also collaborate in providing expertize and insight into prevailing trends in the offshore oil and gas and related shipbuilding industries. Expand production capabilities Triyards management is looking to diversify its business by focusing on ship repair operations and expanding its crane making segment to cater 3rd party clients, which are higher margin businesses . The Group is also looking to expand in the jack-up rig building segment as well. Triyards has already design their own proprietary drilling jack-up, TDU-400, with a new Premium Class 400 HPHT (high pressure, high temperature). The TDU-400 is designed to capitalize on the most advanced drilling systems and equipment available today. It can also be quickly customized to meet the distinct needs of different clients without having to be continuously redesigned, thus avoiding the costs associated with such variation orders. Triyards has already started marketing this product aggressively and any contract would open a new stream of revenue. Establishing presence in new market Triyards Management is also strategically expanding their operational prescence globally into major offshore oil & gas markets. The group believes that Australia is experiencing strong growth and foresee that there will be strong demand for offshore platform structures such as jackets and topsides in that market as well. Another such market into which they are considering expanding is the MIddle Eastern market. The penetration rate is too low for this market and with ageing platforms needing more repair, services and maintenance work would help the demand for SEUs to increase. Their prescence in such market will definitely help them win more contracts. Most importanly having to compete in those market with big players such as GMS and Lamprell will also help them to learn and develop even more efficient and cost effective ways. Synergies from new acquisition Triyards acquired Strategic Marine back in October 2014. The intension was to diversify their product categories so as not to be overly reliant on the offshore oil & gas industry. Strategic Marine expertise lies more in construction and fabrication of high-speed aluminum-based vessels such as the patrol boats, harbor and towage vessels, passenger vessels, commercial fishing boats, floating docks, utility vessels, military and paramilitary vessels. The new acquisition has capabilities to do ship repairs and a global clientele base that Triyards can leverage on. As mentioned earlier, the close proximity of the two shipyards in Vungtau, Vietnam will help them take bigger projects lowering the cost of transportation between the two yards. The two yards have already worked together previously in many projects such as in the building of Lewek Constellation and so merging the operations would not be a hectic task.




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Key Risk: Rising competition expected in liftboat market Triyards faces emerging competititon from other local and international construction services and marine services companies especially those already established in the Gulf of Mexico such as the Halimar Shipyard. Competitive factors include price, quality, availability and technology in vessel building. Some of Triyards global competitors have longer operating histories and greater financial, technical, marketing and other resources which might be in a better position to expand their market share. However we believe that Triyards reputation within Southeast Asian market and its strategic synergy from Ezra will help retain its market share in SEA. Barriers to entry facing new entrants include: significant asset cost involved, rigorous operational standards and oversight done by 3rd parties, a strong proven track record, stringent government compliances, highly sophisticated technical requirements and highly expertized management and labor force. Based on that we believe that the major competition within this industry would remain between the major SEUs players. We reckon that Triyards would be able to not only hold a leading position in SEA but also capture more markets capturing more market share in other regional markets.


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Facilities Triyards own five strategically dedicated facilities located in Vietnam, US (Houston), Australia and Singapore. The three of its 100,000sqm+ yards are located in Vietnam providing engineering, fabrication and ship building activities. Equipped with heavy-lift gantry cranes and deepwater berthes, all three yards in Vietnam have the capability to undertake large-scale projects to fabricate different components of fixed platforms, as well as vessel conversion and construction. The facility has sheltered fabrication space to allow them work year around under all weather conditions.

The Group also owns a fabrication facility in Houston, USA which has in-house engineering capabilities, fabricating specialized offshore equipment including cranes, A-frames and winches which can be installed on the self-elevating units and offshore support and construction vessels fabricated in Vietnam.

TRI YARDS Ho Chi Minh City


TRIYARDS Vung Tau


Size of facility: 100,000sqm Water Frontage: 340m Undercover workshop: 50,000sqm - Including block shops, erection shops, outfitting shops, piping shops, machine shop, electrical shop, blasting & painting shops Industrial activities Yard: 80,000sqm - with 100T hydraulic transporter, 10 – 50T gantry cranes & 250T crawler cranes, etc Launching way: 61m x 141m Marine outfitting quay: max 5.5m draft Size of facility: 134,000sqm Water Frontage: 347m Undercover workshop: 20,858sqm - Includes block shops, outfitting shops, piping shops, machine shop, electrical shop, blasting & painting shops. Industrial activities Yard: 96,000sqm - with 100T hydraulic transporter, 120T A crane & 250T crawler crane Skid-way: 26m x 130m Launching way: 52m x 175m Marine outfitting quay: Max 7m draft


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TRIYARDS Houston


TRIYARDS - Strategic Marine Australia


TRIYARDS – Strategic Marine Vietnam Source: Company website

Size of facility: 60,386sqm of fabrication facilities, including 2 steel burning machines, fabrication area with overhead cranes, machine shop, and hydraulics bay Undercover workshop: Fabrication facility > 18,380 sqm Industrial activities Yard: Cranes, winches, A-Frames and other hydraulic and electric marine deck handling equipment Size of facility: 6,800sqm Length of Jetty: 71m Sea Wall Length: 25m Equipment & Machinery: CNC Plasma Cutting Machines, CNC Router Cutting Machine, Water Blasting Machine, Overhead Crane, Pipe Bending Machine, Welding Machines, Punch Shear Machine, Forklift, Tractor Crane, Bandsaws, Press, Lathe, Tractor Crane, Slewing Crane Panel saw, Drill presses and Water cooled AC/DC TIG welder Size of facility: 147,600 sqm Water Frontage: 505m Launching way: 3 slipways, comprising No. 1 137m x 17m, No. 2 177m x 17m and No. 3 141m x 50m Marine outfitting quay: Maximum draft 2.5m Length 90 metres Equipment & Machinery: CNC Plasma Cutting Machine, Overhead Gantry Cranes, Crawler Crane, Low Bed Trailer, Blast Medium Recovery System, Skate, Hydraulic Pipe Cutting Machine, Hydraulic profile Cutting Machine, Steel Mechanical Cutting Machine, Circular Saw Machine, Planning Machine, Lather Machine, Fire Fighting Trailer, Trucks, Drilling Machine, High Pressure Water Jet Cleaner, Hydraulic Pipe Bending Machine ,Mechanical Bevelling Machine and Forklifts


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TRIYARDS – Strategic Marine Singapore Source: Company website

Size of facility: 11,000 sqm Travel lift: 500 tonnes Staff Numbers: 80 Undercover workshop: 2132 sqm – Including temporary workshop. Store Facility: 110 sqm Equipment & Machinery: Overhead Crane, Pipe Bending Machine, Welding Machines, Scissor Lifts, Plasmarc, GMS Sheering Machine, Bandsaws, GMS Bending Machine, Forklift, Air compressor - Kaeser CS91


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Peers Review We consider Triyards specialty to be in building SEUs, which is their core business generating most of its revenue stream. The SEU construction market has been dominated by a handful of key players since 2005. In total, only 15 yards have been involved in the construction and repair of SEUs. On the global level Halimar Shipyard LLC on the Gulf of Mexico coast has constructed the most number of SEUs but mostly all deployed within the same region as well. Outside U.S., the most reputable constructors include GMS, Lamprell and Triyards, where GMS and Lamprell are mostly active in the Middle Eastern region while Triyards takes the market share in the Southeast Asian region. Almost all of GMS contracts have been awarded internally and it is believed that they do not construct SEUs for 3rd parties and only perform repair and upgrading work. Triyards on the other hand has established itself as the leading constructor of SEUs outside of the US and Middle East and has managed to expand its clientele base. As many of the SEU builders such as Halimar Shipyard and Bollinger Shipyard are still privately owned companies, with little or no data available about their financials. Thus, for valuation purposes we chose to review only three public listed companies involved in SEUs building business as stated below. Conrad Industries - specializes in the construction, conversion and repair of a wide variety of marine vessels for commercial and governmental customers and the fabrication of modular components of offshore drilling rigs and floating, production, storage and offloading vessels. Conrad operates shipyards along the Gulf Coast in Louisiana and Texas. The company currently operates four shipyards in South Louisiana and Texas with direct access to the Gulf of Mexico. With over 12 Construction and Repair buildings totaling over 230,000 sq./ft. and 6 ABS classed dry-docks, Conrad is able to provide 24/7 service to its shallow and deepwater customers. Lamprell PLC - provides diversified engineering, construction, and contracting services to the onshore and offshore oil and gas, and renewable energy industries in the United Arab Emirates, Saudi Arabia, and Kuwait. The company is engaged in the design and construction of new build jackup drilling rigs; various offshore vessels and structures; and process modules for floating production, storage and offloading units, floating storage and regasification units, tender assist drilling barges, mobile offshore production units, liftboats, offshore drilling rig components and accessories, living quarters, turrets, and other offshore fixed structures. It also offers rig refurbishment services; engineering and construction services; and land rig services for various projects and services related to onshore drilling rigs, oilfield service companies, and drilling equipment refurbishment for land and offshore rigs. Lamprell plc was founded in 1974 and is based in Dubai, the United Arab Emirates. Lamprell employs approximately 10,000 people across multiple facilities, with its primary facilities located in Hamriyah, Sharjah, and Jebel Ali, all of which are in the UAE. In addition, the Group has facilities in Saudi Arabia (through a joint venture agreement) and Kuwait. Combined, the Group's facilities cover approximately 910,000 m2 with 2.2 km of quayside.

Gulf Marine Services PLC - was founded in Abu Dhabi, UAE, in 1977 and has

become the largest provider of self-propelled, self-elevating accommodation

jackup barges in the Middle East, and one of the largest worldwide. GMS is listed

on the London Stock Exchange. GMS’ assets provide the stable platform for

delivery of a wide range of services throughout the total lifecycle of offshore oil,

gas and renewable energy activities, and are capable of operations in the Middle


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East, South East Asia, West Africa and Europe. The company constructs and

maintains its vessels at its yard in Abu Dhabi and has an extensive new build and

replacement programme, including the construction of the harsh weather

environment Gusto NG2500X DPII ESVs. As a result, GMS has the youngest and

most sophisticated fleet in the industry, which it operates from its offices in Abu

Dhabi, Saudi Arabia and the United Kingdom. Source: Infield Systems Ltd, Company Prospectus


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Valuation Source: PSR

Triyards currently trades at a forward PE of 5.2x and a forward EPS of 14c (SGD cents), which is way below from what its Peers are trading at. Currently three of its main competitors (Conrad, Lamprell and GMS) are trading at an average Fw PE of 8.4x. Other small/mid-sized shipyards listed on the SGX trade at an average Fw PE of 11.7x. While SPDR S&P Oil, Gas & Equipment Services ETF, which tracks the performance of the Oil, Gas & Equipment Services sector is trading at Fw PE of 13.1. As the main competitors are listed outside Singapore with different market risk premiums, we decided to take an average of all Peers, small/mid-sized shipyards, and the SPDR ETF to come to an average Fw PE of 10.61. To be even more conservative considering lower oil prices, we used a ~30% discount to the average Fw PE of 10.61x to come to 7x. This results in a fair value estimate of S$0.98. We initiate our coverage on Triyards with a BUY call with more than 50% upside potential. The sensitivity analysis below shows the effect of choosing different PE ratio to the target price. Source: PSR

-15% -10% -5% +0% +5% +10% +15%

6.0x 0.715 0.76 0.8 0.84 0.885 0.925 0.97

6.5x 0.775 0.82 0.865 0.91 0.96 1.005 1.05

7.0x 0.835 0.885 0.935 0.98 1.03 1.08 1.13

7.5x 0.895 0.945 1 1.05 1.105 1.155 1.21

8.0x 0.955 1.01 1.065 1.12 1.18 1.235 1.29

Earnings Variance

Target PE


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Source: PSR

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Source: PSR

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FYE Aug FY12 FY13 FY14 FY15F FYE Aug FY12 FY13 FY14 FY15F

Revenue 367 275 269 296 PPE 89 102 107 117

EBITDA 57 43 43 49 Intangibles - 7 8 8

Depreciation & Amortisation (5) (6) (8) (9) Others 1 0 0 21

EBIT 52 37 36 40 Total non-current assets 90 110 115 145

Net Finance (Exp)/Inc (3) (3) (4) (4) Inventories 42 37 31 36

Profit Before Tax 49 35 31 36 Accounts Receivables 116 108 157 163

PBT contr. New Acquis i tion* 0 0 0 7 Cash 7 15 23 26

PBT after New Acquisition 49 35 31 43 Others 35 49 36 35

Taxation before Acquis i tion (5) (3) (4) (6) Total current assets 201 210 246 259

PAT before Acquisition 44 31 27 30 Total Assets 291 320 362 404

Taxation after Acquis i tion (7) Short term loans 53 92 104 107

PAT after Acquisition 36 Accounts Payables 9 21 27 20

* will be consolidated in the next quarter Others 111 60 55 46

FYE Aug FY12 FY13 FY14 FY15F Total current liabilities 173 173 186 174

Long term loans 14 - 6 12

EPS, bas ic (USD) 15.0 11.7 9.0 11.1 Others 0 0 0 0

EPS, adj 15.0 11.7 9.0 11.1 Total non-current liabilities 14 0 6 12

EPS in SGD 18.9 14.5 11.4 14.0 Non-control l ing interest - - - -

DPS 0.00 0.00 2.00 1.00 Total Liabilities 186 173 192 186

BVPS 49.9 57.4 67.2 Shareholder Equity 105 147 169 218

FYE Aug FY12 FY13 FY14 FY15F FYE Aug FY12 FY13 FY14 FY15E

CFO P/E (X) (SGD) - 5.2 5.8 5.2

PBT 49 35 31 43 P/B (X) (SGD) - 1.2 0.9 0.9

Adjustments 9 8 12 13 EV/EBITDA (X) - 9.5 10.1 10.6

WC changes (65) (20) (27) (26) Dividend Yield (%) - 0.0% 3.0% 1.4%

Cash generated from ops (7) 24 16 30 Growth & Margins (%)

Others (Income tax, interest) (4) (8) (8) (11) Growth

Cashflow from ops (11) 16 8 18 Revenue - -25.0% -2.4% 10.2%

CFI EBITDA - -24.4% -0.1% 12.1%

CAPEX, net (15) (26) (13) (18) EBIT - -28.0% -5.1% 12.6%

Others - (7) (0) (21) Net Income, adj. - -28.7% -15.2% 12.1%

Cashflow from investments (15) (33) (14) (38) Margins

CFF EBITDA margin 15.6% 15.8% 16.1% 16.4%

Share i ssuance 0 0 0 16 EBIT margin 14.2% 13.6% 13.2% 13.5%

Loans , net of repayments 28 25 18 10 Net Profi t Margin 12.0% 11.4% 9.9% 10.1%

Dividends 0 0 (5) (3) Key Ratios

Others 0 0 0 0 ROE (%) (post acquisition) 42.0% 21.4% 15.8% 16.5%

Cashflow from financing 28 25 13 23 ROA (%) (post acquisition) 15.1% 9.8% 7.4% 9.4%

Net change in cash 2 8 7 3 Net Debt/(Cash) 59 76 87 94

Effects of currency trans lation (0) 0 0 0 Net Gearing (X) 0.6 0.5 0.5 0.4

CCE, end 7 15 23 26 interest Coverage 16.5 14.7 8.0 9.1

Source: Company Data, PSR est Note: A ll the ratios are calculated based on pre-acquistion values unless otherwise stated

Valuation Ratios

Income Statement (USD 'mln)

Per share data (USD cents)

Cashflow Statements (USD 'mln)

Balance Sheet (USD 'mln)


Page | 22

Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate 2

-5% to +5% Neutral 3

-5% to -20% Reduce 4

< -20% Sell 5

Ratings History

PSR Rating System

Remarks

We do not base our recommendations entirely on the above quantitative return bands.

We consider qualitative factors like (but not limited to) a stock's risk rew ard profile, market

sentiment, recent rate of share price appreciation, presence or absence of stock price

catalyst, and speculative undertones surrounding the stock, before making our f inal

recommendations.

12345

0.5

0.6

0.7

0.8

0.9

1

Oct-1

2

Jan-1

3

Apr-1

3

Jul-1

3

Oct-1

3

Jan-1

4

Apr-1

4

Jul-1

4

Oct-1

4

Jan-1

5

Source: Bloomberg, PSRMarket Price

Target Price


Page | 23

Appendix

Triyards Overview Source: Company Website


Page | 24

Board of Directors Mr Lee Chye Tek Lionel Non-Executive Chairman

Mr. Lee Chye Tek Lionel is the Chairman and a Non-Executive Director of the

Group. He was appointed to the Board on 31 August 2012 and re-elected on 31

December 2012. He is currently the Group CEO and Managing Director of Ezra and

is responsible for the management and operations in Ezra, including the

formulation and implementation of its business strategies and policies, marketing

and charting its growth. His area of expertise includes strategic planning, business

development, operations, project and performance management. Under his

tenure, Ezra has grown from an Asian ship charterer to a global offshore

construction contractor. Mr. Lee holds a Graduate Diploma in Business

Administration from the Western Sydney International College.

Mr Chan Eng Yew Executive Director and Chief Executive Officer

Mr. Chan is responsible for the overall management and operations of TRIYARDS

Holdings Limited. Before his appointment, he was Chief Financial Officer of EOC

Limited, where he actively built its portfolio in financial operations and headed the

investor relations and corporate finance departments. He played a significant role

in spearheading its listing on the main board of the Oslo Stock Exchange in 2007,

positioning EOC as the first Singapore company to list there. He was instrumental

in the completion of the US$227 million loan to finance a floating production,

storage and offloading (FPSO) vessel conversion project for the Lewek EMAS. The

loan was the first such offshore facility to be approved by the State Bank of

Vietnam. Later, Mr. Chan's vast corporate experience was pivotal in leading EOC in

a strategic partnership with Perisai Petroleum Teknologi to undertake a gas FPSO

project for HESS in Malaysia. Mr. Chan holds a masters in business administration

from the University of Louisville in Kentucky and a masters in applied finance from

Macquarie University in New South Wales.

Mr Andrew Mak Yeuw Wah Executive Director and Chief Operating Officer

Mr. Andrew Mak Yeuw Wah is an Executive Director and the Chief Operating

Officer of the Group. He was appointed to the Board on 22 June 2012 and re-

elected on 31 December 2012. Mr. Mak joined the Group in 2012 from American

Bureau of Shipping, Singapore, where he was employed since 1990. His last held

position was Director of Engineering Services. Mr. Mak was previously with the

Republic of Singapore Navy as a Project Engineer from 1988 to 1990 and

Singapore Shipbuilding Engineering Pte Ltd as a Ship Repair Estimator from 1983

to 1985. Mr. Mak holds a Bachelor in Mechanical Engineering (2nd Class Honors)

from Nanyang Technological University and a Diploma in Marine Engineering from

Singapore Polytechnic.


Page | 25

Mr Soh Chun Bin Lead Independent Director

Mr. Soh Chun Bin is an Independent Director of the Group. He was appointed to

the Board on 31 August 2012 and re-elected on 31 December 2012. Mr. Soh is

currently the Chief Executive Officer of Cedar Strategic Ltd., having left legal

practice in 2012. Mr. Soh was previously an equity partner of Stamford Law

Corporation, a major law firm well known in local circles for its expertise in

corporate finance and mergers and acquisitions. He had been one of the early

pioneering lawyers at Stamford Law at its inception in the early 2000s. Mr. Soh

had been a qualified lawyer specializing in capital markets and mergers and

acquisitions for more than 12 years. He has advised on many Singapore and

international initial public offerings of corporations and real estate investment

trusts, including secondary equity and debt fund raising by such entities. Mr. Soh

has also advised on many cross-border transactions and has a broad network

spanning countries such as China and Indonesia. He has been recognized as a

leading lawyer by legal publications such as Chambers and Partners and AsiaLaw.

Mr. Soh was a former scholar with a global MNC and holds a Bachelor of Law

(Honors) from the National University of Singapore.

Mr Nguyen Van Buu Independent Director

Mr. Nguyen Van Buu is an Independent Director of the Group. He was appointed

to the Board on 31 August 2012 and re-elected on 31 December 2012. Mr. Nguyen

held the position of Official at the State Pricing Committee of Cuu Long Province

from 1977 to 1980. In 1980, he joined Printing Enterprise No. 6 of HCMC as an

Accountant and from 1982 to 1984, he was Chief Accountant at Wood Packaging

Factory. Mr. Nguyen held the position of Official at the State Pricing Committee of

HCMC from 1984 to 1988. Mr. Nguyen joined Foodstuff Company No. 2 - HCMC in

1998 as Head of Foreign Investment and Import-Export Section. In 1992, he joined

Vietnam Brewery Ltd and has held various positions at Vietnam Brewery Ltd

including Personal Assistant to the General Manager, Coordinating Manager,

Corporate Affairs Director, Human Resources Director and Corporate Social

Responsibility Director. He currently holds the position of Member of Members

Council cum Deputy Managing Director at Vietnam Brewery Ltd. Mr. Nguyen

graduated with a Bachelor of Business Administration from The Economic

University of Ho Chi Minh City.

Ms Loy Juat Boey Independent Director

Ms Loy Juat Boey was appointed to our Board on 1st September 2013. She has

more than 33 years of leading and managing a full spectrum of financial functions,

including, financial and management accounting, corporate finance,

implementation of internal controls, oversight of treasury and tax management,

information technology, as well as statutory reporting for a public listed company.

During the course of her career, she had stints in Ernst & Young, Puvaria Packaging

Industries (now known as AMB Packaging Pte Ltd), and finally culminated in Asia

Pacific Breweries Limited, where she rose to the post of Director, Group Finance.


Page | 26

She retired from APB in January 2013. Her other work experiences include being

the Director of Asia Pacific Brewery (Lanka) Ltd, Heineken-APB (China) Holding Pte

Ltd, Lao Asia Pacific Breweries Ltd, MCS Asia Pacific Brewery LLC, Mongolian

Beverages Company Pte Ltd, Solomon Breweries Limited, South Pacific Brewery

Limited, TAP Trading Co Ltd, Tiger Export Pte Ltd and Tiger Marketing Pte Ltd. Ms

Loy is a Fellow of the Institute of Singapore Chartered Accountants and holds a

Bachelor of Accountancy (Honors) from University of Singapore, in 1979.


Page | 27

Key Management Mr Chan Eng Yew Executive Director and Chief Executive Officer Mr. Chan is responsible for the overall management and operations of TRIYARDS Holdings Limited. Before his appointment, he was Chief Financial Officer of EOC Limited, where he actively built its portfolio in financial operations and headed the investor relations and corporate finance departments. He played a significant role in spearheading its listing on the main board of the Oslo Stock Exchange in 2007, positioning EOC as the first Singapore company to list there. He was instrumental in the completion of the US$227 million loan to finance a floating production, storage and offloading (FPSO) vessel conversion project for the Lewek EMAS. The loan was the first such offshore facility to be approved by the State Bank of Vietnam. Later, Mr. Chan's vast corporate experience was pivotal in leading EOC in a strategic partnership with Perisai Petroleum Teknologi to undertake a gas FPSO project for HESS in Malaysia. Mr. Chan holds a master in business administration from the University of Louisville in Kentucky and a masters in applied finance from Macquarie University in New South Wales. Mr Yan Naing Aung Chief Financial Officer Mr. Yan joined Ezra in 2001 as an Accountant and steadily rose up the ranks to Finance Manager, where he was responsible for the preparation of the accounts for the marine services division of Ezra. In 2005 and in 2007, Mr. Yan was appointed Deputy General Director of SSY and SOFEL respectively, where he was responsible for financial, regulatory, procurement and administrative matters, including internal controls. Mr. Yan is a Charter Accountant of Singapore and is a Fellow of the Association of Chartered Certified Accountants, UK. Mr Jeffrey Ong Ah Koon General Manager Mr. Ong joined Ezra in 2004 as a technical superintendent. Having proved his mettle on the ground, he was promoted to project manager in 2006, and became general manager of TRIYARDS SOFEL and TRIYARDS SSY in 2010. Before joining Ezra, he was a technical superintendent at Agensea. Previously, he was a hull engineer at Hitatchi Zosen (S) and then a technical manager at North Shipyard. Mr. Ong holds a diploma in shipbuilding and offshore engineering from Ngee Ann Polytechnic. Mr David Zhang Chiping Assistant General Manager After joining Ezra in 2007, Mr. Zhang served as production manager at TRIYARDS SSY from 2007 to 2008 and general manager of TRIYARDS SOFEL from 2008 to 2010. He was appointed assistant general manager for both yards in 2010. Previously, he was an assistant production director at Yantai Raffles Shipyard, which he joined in 2005. He moved there from Keppel Shipyard, where he last served as a project manager. He began his career as a hull engineer at Wuchang Shipyard and later at Jurong Shipyard. Mr. Zhang has a degree in shipbuilding and marine engineering from East China Shipbuilding University.


Page | 28

Mr Richard A. Altman General Manager & Senior Vice President Global Business Development, TRIYARDS, Houston Texas Mr. Altman joined in 2012 and heads the TRIYARDS facility in Houston, as well as global business development for the Group. He brings with him more than 30 years' experience with global onshore and offshore operations, extensive expertise in field operations, engineering and production optimization - all these while establishing relationships with international oil and gas businesses. Before joining TRIYARDS, he was the founder, president and chief operating officer of his own entrepreneurial venture, Remedial Offshore - getting the company incorporated and raising sufficient funds (US$350 million) for its successful listing on the Oslo stock exchanges under the call letters "ROFF". Remedial Offshore was first to introduce to the international market place, a High Specification, Self-Elevating, Self-Propelled Unit, called the ESV, targeting working water depths in excess of 100 meters; this preceded the now commonly referred to ABS category "SEU". Following that, he was senior vice president of engineering and construction at R360 Environmental Solutions. He attended the University of Pittsburgh where he majored in Engineering. Mr Chng Hong Tat Assistant General Manager Production & Yard Operations, Triyards Mr. Chng is responsible for managing yard operations and projects in Triyards Vietnam. Among his achievements, he has helped the Group set up its shipyard in Ho Chi Minh City, Vietnam in 2010. He has over 20 years' experience in naval operations, marine survey and project management. Prior to joining Triyards, Mr. Chng was the yard manager and new construction project manager with Kreuz Shipbuilding Engineering Pte Ltd for seven years, overseeing yard operation and development, production development, as well as manpower management. He brings with him vast experience from blasting painting and staging in Keppel FELS Shipyard Pte Ltd, classification society surveying for Lloyd's Register Asia, and also overseeing the establishment and operations of a new yard for Keppel Kazakhstan LLP.


Page | 29

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1 December 2014 Triyards Holdings Ltd. - Phillip Capitalinternetfileserver.phillip.com.sg/POEMS/Stocks/... · most advanced construction and pipelay vessels globally in its class,