CHEMOIL

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 5 11

Rating Buy 2Buy 2

Prior: Not Rated

Global Equity Research

Price target US$0.95US$0.95

Prior:Not Rated

UBS Investment Research

Chemil Energy Limited

Fuelling growth [EXTRACT]

�� Leading global supplier of marine fuel productsLeading global supplier of marine fuel products

We initiate coverage of Chemoil Energy (Chemoil), one of the largest independent

providers of marine fuel products globally, with a Buy 2 rating. The business is

volume driven, where scale economies, access to credit, and a strong sourcing and

distribution network are key to superior profitability. Chemoil has achieved the

largest market share in major US bunker ports and it has an established presence in

the Amsterdam-Rotterdam-Antwerp region, Singapore, and Panama.

�� Well positioned for strong earnings growthWell positioned for strong earnings growth

We believe earnings growth will be driven by market share gains at existing ports,

leading to improving asset turn. We expect Chemoil to enter new markets, and

believe industry dynamics justify its strategy: 1) oil majors are de-emphasising

low-yielding businesses, such as bunkering, in favour of upstream investments;

and 2) high bunker prices are squeezing out competitors that have weaker balance

sheets.

�� Key risks: sharp fall in bunker prices, supply disruptionKey risks: sharp fall in bunker prices, supply disruption

Margins are thin and could be hurt by: 1) sharp declines in the bunker price if

hedging is imperfect, as Chemoil typically holds seven days of unsold inventory;

2) supply disruptions; and 3) aggressive price wars with competitors.

�� Valuation: price target of US$0.95 based on discounted FCFValuation: price target of US$0.95 based on discounted FCF

We value Chemoil at US$0.95/share based on the discounted value of its free cash

flow to equity, using a 9.2% COE discount rate and assuming 3% terminal growth.

Highlights (US$m) 12/05 12/06 12/07E 12/08E 12/09E

Revenues 3,674 4,346 4,898 5,626 6,1833,674 4,346 4,898 5,626 6,183

EBIT (UBS) 67 87 109 134 15867 87 109 134 158

Net income (UBS) 49 58 77 92 11049 58 77 92 110

EPS (UBS, US$) 0.05 0.05 0.06 0.07 0.090.05 0.05 0.06 0.07 0.09

Net DPS (UBS, US$) 0.00 0.01 0.01 0.02 0.020.00 0.01 0.01 0.02 0.02

Profitability & Valuation 5-yr hist. av. 12/06 12/07E 12/08E 12/09E

EBIT margin % - 2.0 2.2 2.4 2.6- 2.0 2.2 2.4 2.6

ROIC (EBIT) % - 29.0 22.9 20.0 20.4- 29.0 22.9 20.0 20.4

EV/EBITDA x - 9.3 7.2 6.3 5.7- 9.3 7.2 6.3 5.7

PE (UBS) x - 10.7 8.7 7.3 6.1- 10.7 8.7 7.3 6.1

Net dividend yield % - 1.8 2.5 3.0 3.6- 1.8 2.5 3.0 3.6

Source: Company accounts, Thomson Financial, UBS estimates. (UBS) valuations are stated before goodwill, exceptionals and other special items.

Valuations: based on an average share price that year, (E): based on a share price of US$0.52 on 15 Mar 2007 17:33 HKT

Cheryl Lee, CFA

Analyst

cheryl.lee@ubs.com

+65-6836 5914

Michael Lim

Associate Analyst

michael-h.lim@ubs.com

+65-6836 5902

16 March 2007

Trading data

52-wk. range US$0.60-0.51US$0.60-0.51

Market cap. US$0.67bnUS$0.67bn

Shares o/s 1,293m1,293m

Free float 17%17%

Avg. daily volume ('000) 186186

Avg. daily value (US$m) 0.10.1

Balance sheet data 12/07E

Shareholders' equity US$0.30bnUS$0.30bn

P/BV (UBS) 2.2x2.2x

Net cash (debt) (US$0.36bn)(US$0.36bn)

Forecast returns

Forecast price appreciation +82.7%+82.7%

Forecast dividend yield 2.5%2.5%

Forecast stock return +85.2%+85.2%

Market return assumption 5.0%5.0%

Forecast excess return +80.2%+80.2%

EPS (UBS, US$)

12/07E 12/06

From To Cons. Actual

H1E - 0.03 - 0.02- 0.03 - 0.02

H2E - 0.03 - 0.03- 0.03 - 0.03

12/07E - 0.06 -- 0.06 -

12/08E - 0.07 -- 0.07 -

Performance (US$)

0

0 . 1

0 . 2

0 . 3

0 . 4

0 . 5

0 . 6

0 . 7

12/03

03/04

06/04

09/04

12/04

03/05

06/05

09/05

12/05

03/06

06/06

09/06

12/06

03/07

0

2 0

4 0

6 0

8 0

1 00

1 20

Pric e T arg e t (U S$) (LHS ) R el. Singapore All S h a re (R HS )

Stoc k P ric e (U S $) (LHS )

Sto ck P rice (U S $) R el. S in ga p or e A ll Sh a re

Source: UBS

www.ubs.com/investmentresearch

This report has been prepared by UBS

Securities Pte. Ltd.

Chemoil Energy Limited 16 March 2007

UBS 216 March 2007

UBS 22

This is an extract from our initiation of coverage report published on 16

March 2007. For more detail, please refer to the longer report.

Summary and Investment Case

Track record. Chemoil is one of the largest independent providers of marine

fuel products (bunkers) in the world. The company, established 25 years ago by

its CEO Robert Chandran, commands a significant market share in key

bunkering markets.Chemoil is one of the largest independent providers of marine

fuel products (bunkers) in the world. The company, established 25 years ago by

its CEO Robert Chandran, commands a significant market share in key

bunkering markets.

Supportive macro trends. Over the next few years, we expect two key trends

to underpin bunkering industry growth?continuing expansion in global trade

and a large increase in the global fleet size. As oil prices remain high, we could

see further in-market consolidation, benefiting players such as Chemoil.Over the next few years, we expect two key trends

to underpin bunkering industry growth?continuing expansion in global trade

and a large increase in the global fleet size. As oil prices remain high, we could

see further in-market consolidation, benefiting players such as Chemoil.

Growth drivers. The bunkering business is volume driven, and Chemoil?s key

competitive advantages are its economies of scale, superior sourcing and

distribution networks, and cheap access to credit.

We expect Chemoil?s earnings growth to be driven by: 1) volume growth: from

increasing its market share at existing high-volume ports (Singapore and

Rotterdam) and entering new markets (Fujairah); and 2) margin growth: via

improving inventory sourcing, restructuring costs, and increasing asset turn.The bunkering business is volume driven, and Chemoil?s key

competitive advantages are its economies of scale, superior sourcing and

distribution networks, and cheap access to credit.

We expect Chemoil?s earnings growth to be driven by: 1) volume growth: from

increasing its market share at existing high-volume ports (Singapore and

Rotterdam) and entering new markets (Fujairah); and 2) margin growth: via

improving inventory sourcing, restructuring costs, and increasing asset turn.

Industry dynamics support Chemoil?s strategy. We expect Chemoil to gain

market share from both the large oil majors and the small players.We expect Chemoil to gain

market share from both the large oil majors and the small players.

(1) Large competitors, such as the oil majors (45% global market share), are

gradually de-emphasising this business in favour of upstream investment.

Upstream investments offer better earnings potential and could yield

superior returns, especially in a higher normalised oil price environment.

Bunkering typically accounts for less than 2% of an oil majors? total

earnings.Large competitors, such as the oil majors (45% global market share), are

gradually de-emphasising this business in favour of upstream investment.

Upstream investments offer better earnings potential and could yield

superior returns, especially in a higher normalised oil price environment.

Bunkering typically accounts for less than 2% of an oil majors? total

earnings.

(2) Small players (30-40% global market share) with fewer vertically

integrated operations and credit facilities, and weaker balance sheets and

scale economies seem to be losing market share to the larger players,

because their suite of services is limited.Small players (30-40% global market share) with fewer vertically

integrated operations and credit facilities, and weaker balance sheets and

scale economies seem to be losing market share to the larger players,

because their suite of services is limited.

Network advantage. Chemoil?s size and network are critical, in our view,

allowing it to capitalise on economies of scale, which, we believe, is an

important growth driver. Chemoil has a very strong competitive edge over

smaller players, as its direct reach into key customers (as opposed to through a

middle-man as with the case for many of its competitors) means it can offer

better services and superior credit terms.Chemoil?s size and network are critical, in our view,

allowing it to capitalise on economies of scale, which, we believe, is an

important growth driver. Chemoil has a very strong competitive edge over

smaller players, as its direct reach into key customers (as opposed to through a

middle-man as with the case for many of its competitors) means it can offer

better services and superior credit terms.

Access to credit. The use of financial resources is a key bargaining tool to win

market share in the industry. Crucially, Chemoil?s financial strength means it is

in a position to offer important customers financing terms smaller players would

be unable to match. Gearing appears to be high (2007E net debt/equity of aboutThe use of financial resources is a key bargaining tool to win

market share in the industry. Crucially, Chemoil?s financial strength means it is

in a position to offer important customers financing terms smaller players would

be unable to match. Gearing appears to be high (2007E net debt/equity of about

Significant market share in key

bunkering markets

Expansion in global trade and a sharp

increase in global fleet size are the key

positives

We expect earnings to be driven by

Chemoil?s continuing ability to raise

market share in existing ports, enter

new markets and, in the process,

maximise asset turn

Oil majors are de-emphasising this

business in favour of upstream

investments

Small players with weak balance sheets

are being squeezed out

We think Chemoil?s size and network

are critical

Access to credit, a key competitive

advantage

Chemoil Energy Limited 16 March 2007

UBS 316 March 2007

UBS 33

120%), but one should bear in mind that its inventory is readily convertible into

cash; hence this should not be a cause for concern, in our view.

Business strategy. Management plans to expand its network; rationalise costs by

acquiring distribution infrastructure (oil storage tanks, oil tankers, and bunker

barges) where ownership and control are deemed critical to improve market share

and asset turn. Management believes sustainable margin improvement?and

therefore lower per unit costs?could be achieved if the company owns and

controls certain assets instead of leasing them from third parties.Management plans to expand its network; rationalise costs by

acquiring distribution infrastructure (oil storage tanks, oil tankers, and bunker

barges) where ownership and control are deemed critical to improve market share

and asset turn. Management believes sustainable margin improvement?and

therefore lower per unit costs?could be achieved if the company owns and

controls certain assets instead of leasing them from third parties.

Valuation. We value Chemoil at US$0.95 based on the discounted value of its

free cash flow to equity, using a 9.2% COE discount rate and assuming 3%

terminal growth. We forecast net profit growth of 33% for 2007 and about 20%

YoY growth until 2010. This assumes that the company would be able to

achieve volume growth of 10-15% from 2007-10?equivalent to a net addition

of about 1.5-2.5m metric tonnes (MT) of bunkers annually. We also assume

there would be steady margin improvement from economies of scale and cost

synergies.

The stock seems inexpensive at current levels,?on a historical 2006 PE of

10.7x and at only 8.7x 2007 estimated earnings. We believe if management is

able to implement its strategy of delivering healthy volume growth and

sustained margin improvement over the next few reporting periods, Chemoil

would benefit from a significant re-rating.

At our price target, Chemoil would trade at 16.0x 2007 estimated net profit and

13.3x 2007 projected EV/EBITDA. We think this is still attractive versus other

logistics stocks. Chemoil does not have any Singapore-listed direct comparable;

however, Olam International is similar in terms of business model. Outside

Singapore other listed bunker suppliers include World Fuel Services and Aegean

Marine that are trading at 10-12x 2007 EV/EBITDA, based on Bloomberg

consensus estimates.We value Chemoil at US$0.95 based on the discounted value of its

free cash flow to equity, using a 9.2% COE discount rate and assuming 3%

terminal growth. We forecast net profit growth of 33% for 2007 and about 20%

YoY growth until 2010. This assumes that the company would be able to

achieve volume growth of 10-15% from 2007-10?equivalent to a net addition

of about 1.5-2.5m metric tonnes (MT) of bunkers annually. We also assume

there would be steady margin improvement from economies of scale and cost

synergies.

The stock seems inexpensive at current levels,?on a historical 2006 PE of

10.7x and at only 8.7x 2007 estimated earnings. We believe if management is

able to implement its strategy of delivering healthy volume growth and

sustained margin improvement over the next few reporting periods, Chemoil

would benefit from a significant re-rating.

At our price target, Chemoil would trade at 16.0x 2007 estimated net profit and

13.3x 2007 projected EV/EBITDA. We think this is still attractive versus other

logistics stocks. Chemoil does not have any Singapore-listed direct comparable;

however, Olam International is similar in terms of business model. Outside

Singapore other listed bunker suppliers include World Fuel Services and Aegean

Marine that are trading at 10-12x 2007 EV/EBITDA, based on Bloomberg

consensus estimates.