DBS report on KS Energy.

Mr Kris Wiluan, KS Energy Chairman, spoke to reporters at the Reuters Global Energy Summit in S'pore yesterday that the group:

1) intends to add two onshore/offshore drilling rigs per year, costing US$20m to US$200m each, so as to take advantage of the still booming oil services sector. These rigs can be newly built or bought from the secondary market,

2) may move into deepwater drilling services in the longer term, so as to support steady growth,

3) may take stakes in firms with an expanding offshore fleet if such opportunities did arise,

4) are positive on the outlook of offshore exploration activities, as day charter rates are expected to remain high enough to offset higher prices for rigs.

This news reinforces KS Energy's confidence in the group's improving prospects. Following the acquisition of Atlantic Oilfield Services (AOS) in mid-'07 that give the group access to around 300 practising industry professionals, we have highlighted on several occasions our expectation for KS Energy to expand its business through time charter of majority owned land rigs and jackup rigs. Still, we believe that one of the leading indicator of KS Energy's purchase of more assets will rest on its success in offloading previously jointly-owned non-core assets in the market to raise the much needed cash to fund further acquisition.

We expect KS Energy's subsequent quarters in '08 to be significantly stronger than 1Q08, as KS Energy has already deployed at least one wholly-owned land rig and a jackup rig that will contribute significantly starting 2Q08. As a recap, KS Energy reported 107% yoy growth in net profit in 1Q08. KS Energy also has a 50%-owned jackup rig under construction in the Middle East, and we expect the back-to-back time charter contract for this new rig to be announced before mid-'09.

We reiterate that KS Energy is an undervalued play in the marine sector, trading at 7.6x recurring FY08 PE (financial year ended Dec) vs. its 51%-owned listed subsidiary Aqua-Terra's, a pure play distributor, 7.5x FY08 PE (financial year ended Dec). We expect around 70% of KS Energy's net profit in FY08 to come from long-term chartering income, which deserves better share price valuation due to significantly higher profit margin and better earnings visibility, as compared to a pure play distributor.