Labroy Marine

• One more slot for FY2010. Labroy?s current order book is S$2.4bn, of which jackups
  and offshore units account for about 60%. With four jack-up rigs and two heavylift
  vessels on hand, Labroy still has a slot for another offshore unit for FY10 delivery,
  based on its current capacity. When Phase 1 of its yard expansion is completed by
  end-2007, Labroy will have the capacity to build nine offshore units concurrently for
  three deliveries per annum. It is still receiving a high level of enquiries and we believe
  one more rig or heavy-lift vessel could be added to its order book by 1Q08.
  

• Experienced management team to run rig business. Our meetings with
  Labroy?s Chairman, Mr BT Tan and Director of Shipbuilding, Mr HT Toh have
  reassured us that the delivery of the first two jack-up rigs is on schedule and
  Labroy is equipped with a strong management team with engineering and
  technical expertise, project management and business development experience
• Standard Drilling affirms delivery is on schedule. We are comforted by
  Standard Drilling?s confirmation that the first two jack-up rigs being built by Labroy
  are on schedule. The first rig, Naga 2, is 53% completed vs. the 52% planned
  while the second rig is 9% ahead of schedule
• In the worst case? We estimate that Labroy will incur a maximum penalty of
  US$22m (7.5% of contract value) if the first two rigs are delayed. For cancellation
  of all orders (highly unlikely), progressive payments received have to be returned
  with interest at LIBOR +2%. On the flip side, the rigs could be sold at higher prices
  of US$180m-200m in the current market.
• Target price raised to S$2.85 from S$2.59, based on sum-of-the-parts valuation.
  We have raised our earnings estimates by 7-10% for FY07-09 to account for
  higher margin and lower provision assumptions. Stock is now trading at11.5x
  CY08P/E. At our target price, implied P/E of 15x CY08 is a valuation target that
  factors in the execution risk and unproven rig building track record, in our opinion.
  Maintain Outperform.