9M09 results below consensus - PATMI at US$40mn is only 66% of consensus FY09E of US$61mn. Operationally, results were in line with our forecasts with 9M09 EBIT at 73% of our full year forecast. We raise our earnings estimates by 7-16% to reflect lower than expected financing costs and higher than expected associate income. However, we remain concerned over three key issues:

1) Earnings volatility - While we appear bullish with FY10/11E earnings estimates at 11%/31% above consensus and imply 47%/29% YoY growth, significant part of earnings growth is from i) yard order book fulfillment (lumpy and lacks visibility), ii) energy services division (high operating leverage), and iii) FPSO contribution (delayed since Aug-08). Earnings growth is likely to be volatile. See Figure 4 on Page 3.

2) Balance sheet concerns - High net gearing at 49%-owned EOC (2.4x) remains worrisome. We note that Ezra and EOC's assets are usually packaged to provide an integrated suite of services. We derive a net gearing of 0.5x after incorporating Ezra's recent share placement and consolidating EOC's balance sheet with Ezra; gearing is unlikely to improve when considered together with negative operating cash flows for Ezra's core business. See Figure 5 on Page 3.

3) Cash drain - Cash generation has been deteriorating since 1Q09. Working capital adjustment has been negative since 2Q08. See Figure 6 on Page 3.

Maintain Sell - We raise our sum-of-the-parts target price to S$1.00 from S$0.95 based on our earnings revisions. We use 6x FY-Aug-10E P/E (15% below peers) to value the core business.