Overweight (Maintained)

Sector Update, 12 September 2013 Oil & Gas Stock Picking At The Forefront Overweight (Maintained) Macro Risks Growth Value Except for Alam Maritim, most of the companies under our coverage reported earnings that were within estimates, while a few were lower than expected. While Petronas may slow down on rolling out new contracts, we believe that the impact would be greater on onshore players as we anticipate offshore activities to remain robust. We retain our OVERWEIGHT call on the oil & gas sector. No major surprises. Except for Alam Maritim, most of the companies under our coverage reported earnings that were within expectations, while a few posted lower-than-expected numbers. That said, companies such as Wah Seong, Petra Energy and KNM whose results were below our and consensus forecasts may see better results if they are able to secure more contracts or improve on their operations. Be selective. Industry sources have it that Petronas may slow down on the award of new contracts. We believe that onshore projects such as RAPID would have a higher risk of being delayed but we remain bullish on offshore activities as Petronas would still need to step up oil production before Malaysia becomes a net oil importer. Hence, investors need to be selective when investing in O&G stocks and look out for companies with solid orderbook to buffer earnings and which may benefit from upcoming tenders. We prefer the fabricators, offshore asset owners with drilling assets and companies which are marginal oilfields. Maintain OVERWEIGHT. We maintain our OVERWEIGHT call on the sector, premised on: i) Petronas MYR300bn capex from 2011 to 2015, ii) positive FY13-14F earnings growth overall, iii) anticipation of more contracts being awarded in 2H13, including transportation and installation jobs from the Pan Malaysia cluster, as well as contracts relating to marginal oil fields, and iv) higher oil prices due to the political turmoil in the Middle East, which may spur O&G activities. Our Top picks are SapuraKencana Petroleum for large cap stocks, Dayang Enterprise for mid caps and Alam Maritim in the small cap segment. The Research Team +603 9207 7628 research2@rhbgroup.com P/E (x) P/B (x) Yield (%) Company Name Price Target Dec-13F Dec-13F Dec-13F Rating Alam Maritim MYR1.45 MYR2.00 14.9 1.9 0.2 BUY Bumi Armada MYR3.97 MYR4.40 25.2 2.8 0.9 BUY Coastal Contract MYR2.79 MYR3.00 10.5 1.5 2.2 BUY Dayang Enterprise MYR4.76 MYR6.50 16.0 3.9 3.1 BUY Dialog MYR2.65 MYR3.18 32.0 4.5 1.4 BUY Favelle Favco MYR2.82 MYR3.55 9.2 1.5 2.7 BUY KNM Group MYR0.42 MYR0.40 14.9 0.3 - NEUTRAL Malaysia Marine and Heavy Enginee MYR3.79 MYR4.11 23.3 2.3 2.6 NEUTRAL Perdana Petroleum MYR1.85 MYR1.80 18.1 1.9 1.8 NEUTRAL Perisai Petroleum Teknologi MYR1.37 MYR2.15 14.4 2.4 - BUY Petra Energy MYR2.24 MYR2.70 31.7 1.5 0.6 BUY Petronas Chemicals MYR6.70 MYR6.55 12.6 2.4 4.0 NEUTRAL Petronas Gas MYR21.30 MYR18.57 28.0 4.4 2.5 NEUTRAL SapuraKencana Petroleum MYR3.70 MYR4.96 25.2 2.3 - BUY Wah Seong MYR1.73 MYR2.50 14.4 1.3 3.2 BUY Source: Company data, RHB estimates See important disclosures at the end of this report Powered by Enhanced Datasystems EFA TM Platform 1

Oil & Gas 12 September 2013 Figure 1: Snapshot of O&G companies latest results/outlook Company Bloomberg Ticker Period of results Core net profit vs RHB estimates Comments Results: AMRB s 1HFY13 core net profit of MYR46.1m, stripping off MYR5.5m in gains, beat forecasts, accounting for 60% and 56% of our/consensus estimates respectively. Alam Maritim AMRB MK 2QFY13 Above Outlook: We expect AMRB s earnings to remain resilient backed by earnings from its offshore support vessel and subsea divisions while there may be upside from the Pan Malaysia cluster s upcoming transportation & installation tenders, benefitting its offshore installation & construction division. Results: BAB s 1H13 net profit of MYR221.6m was within our but below consensus estimates, at 48.0% and 42.8% of both full-year forecasts respectively. Bumi Armada BAB MK 2QFY13 Within Outlook: We remain positive on BAB s prospects, underpinned by: i) improving demand in the global FPSO market, ii) steady utilisation rates at its OSV business, iii) its plans to offer deepwater services, and iv) a potential upside from its new floating gas solutions business, which is built on the company s existing competencies. Results: COCO s 1H13 net profit of MYR63.1m was in line with our but slightly below consensus full-year estimates. Coastal Contracts COCO MK 2QFY13 Within Dayang Enterprise DEHB MK 2QFY13 Within Outlook: For now, we value the stock at 10x P/E but with a potential jack-up rig contract in hand, we believe this could easily prompt a re-rating of the stock towards 13-14x forward earnings, in line with the other offshore asset owners. Results: DEHB s MYR60.6m 1H13 core net profit accounted for 37% of our and 40% of consensus FY13 estimates, which we consider in line because earnings are likely to be boosted in 2H13 by the new contracts secured earlier this year. Outlook: We think the stock should re-rate higher given DEHB s clear earnings visibility for the next five years, as well as its solid execution track record. Results: DLG s FY13 net profit of MYR193.3m met our/consensus full-year estimates, at 100.7%/100.0% of the respective full-year forecasts. Business prospects continue to support growth, as evidenced by its 36.9% y-o-y revenue growth. Dialog DLG MK FY13 Within Outlook: We remain bullish on the stock as the development of Pengerang Phase 1 is on track. We expect Pengerang to start contributing by FY 2014. We see more room for upgrades as our FV does not include: i) the impact of its involvement in the Balai RSC, ii) the full potential earnings from the Pengerang centralised tank farm (CTF) project (Phase 2 onwards), and iii) further expansion of Tanjung Langsat (Phase 3 and beyond), which is currently on hold. See important disclosures at the end of this report 2

Oil & Gas 12 September 2013 Results: FFB s 1H13 net profit of MYR21.6m was below expectations, accounting for just 30.5% of our full-year estimate, due to higher tax expenses and weaker revenue. Favelle Favco FFB MK 2QFY13 Below Outlook: We continue to like FFB s solid orderbook of MYR832m, its decent operating margins and cheap valuations. That said, we remain cautious on the effective tax rates it is due to recognize as it lost its pioneer tax status last year. Results: KNMG s 1H13 net profit of MYR13.6m was below our but in line with consensus forecasts, at merely 25.7% of our and 48.1% of consensus full-year estimates. KNM Group KNMG MK 2QFY13 Below MMHE MMHE MK 2QFY13 Below Outlook: Disappointment to continue as the group is mired in uncertainty. Given the murky prospects, including: i) the continuation of its Peterborough project, ii) weak prospects in orderbook replenishment, and iii) weak operating capability to execute its projects, we do not expect the stock to surprise on the upside in FY 2013 and FY2014. Results: MMHE s 1H13 net profit of MYR98.1m was below expectations, reaching just 37.6% and 36.8% of our and consensus estimates, respectively. Margins shrank on higher costs arising from its Tapis enhanced oil recovery (EOR) project. Outlook: We believe that 2H13 may be better for MMHE given that there is a chance that it might be able to recognise revenue from its Malikai project. Also, management has guided that it could potentially secure up to MYR1bn worth of projects later this year despite as it has tendered for jobs worth MYR4.5bn. Results: PETR s 1H13 net profit of MYR24.3m was within expectations, accounting for 48% and 45% of our and consensus estimates respectively. Perdana Petroleum PETR MK 2QFY13 Within Outlook : We advocate buying PETR s shares on dips as the company s prospects are good going towards FY15, backed by full year contributions from its newbuilds and its strategic partnership with DEHB. Most of PETR s vessels are currently on long-term charters ranging from 3 to 5 years, which will enhance its earnings visibility over the next few years Results: PPT s 1HFY13 net profit of MYR47.7m was within our and consensus estimates, at 48% and 47% of the respective full-year forecasts. Perisai Petroleum PPT MK 2QFY13 Within Outlook: We believe that PPT s FY14 earnings prospects remain intact following the recent acquisition of its new asset, a FPSO vessel. In view of the upcoming Pan Malaysia transportation & installation tender, we believe that there should be sufficient demand for its derrick lay barge, which will translate into a charter contract in FY14. Results: PENB s 1H13 core net profit of MYR4.1m was broadly in line with expectations. While earnings accounted for only 18.1% of our and 18.6% of consensus full-year estimates, we expect its 2H13 earnings to be lifted by maiden contributions from new contracts. Petra Energy PENB MK 2QFY13 Below Outlook: We still see catalysts in the form of order wins from its subsea business and recovery of investor confidence in the stock once the worst is truly over in FY14. Other near term catalysts that may lift our earnings projection include: i) securing its maiden enhanced oil recovery (EOR) project, ii) securing bareboat contracts for its work barges, and iii) another marginal oilfield project. See important disclosures at the end of this report 3

Oil & Gas 12 September 2013 Petronas Chemicals PCHEM MK 2QFY13 Within Results: PCHEM s 1H13 net profit of MYR2.06bn was within our but slightly above consensus, accounting for 48.4% of our and 53.0% of consensus full-year forecasts. Outlook: While the global outlook for petrochemicals is encouraging, we retain our NEUTRAL call on PCHEM. The stock is still reasonably attractive from a dividend perspective as it offers yields of 4.1% and 4.3% for FY13 and FY14 respectively. Results: Petronas Gas (PTG) s 1H13 core net profit of MYR713.8m was within our and consensus forecasts, making up 47.5% and 46.7% of both estimates respectively. Petronas Gas PTG MK 2QFY13 Within Outlook: We believe that PTG s earnings will remain stable for the remainder of the year for the following reasons: i) its fixed fee structure under the Gas Processing and Transmission Agreement (GPTA), and ii) potential earnings contribution from its LNG regassification terminal business in Melaka. SapuraKencana Petroleum SAKP MK - - Results : To be announced in September (FYE Jan) Outlook: We are projecting a FY13-FY16 net profit CAGR of 41.9% backed by: i) a strong MYR25.9bn orderbook, ii) potential MYR3bn worth of transportation and installation contracts in the Pan Malaysia fields, iii) MYR1bn-MYR2bn worth of subsea contracts, and iv) new engineering, procurement, construction, installation and commissioning (EPCIC) and EOR developments. Results: WSC s MYR7.4m earnings for 1HFY13 fell short of below estimates, accounting for merely 8.0% of our and 8.8% of consensus full-year estimates. Wah Seong WSC MK 2QFY13 Below Outlook: Limited upside to earnings in FY2013. The pipe coating job awarded by Statoil will only start contributing significantly by FY 2014. However, we conservatively assume that the margins will not be as good as what Gorgon had offered. Source: RHB estimates See important disclosures at the end of this report 4

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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