Top small/mid-cap picks are Ezra Holdings (43% price upside) and Mermaid Maritime (60%). 43-60% price upside to our top picks' fair values. While we do not expect a quick recovery in the sector fundamentals in 2H09 given the bottlenecks, there are 43-60% upsides to the undemanding fair values (using normalized early cycle valuation) of our top small/mid-cap picks; namely Ezra Holdings and Mermaid Maritime.

Search for Alpha drives interest in new coverages. There was strong investor interest in our new coverages in June, namely Ezion Holdings [BUY; S$0.76] and Mermaid Maritime [BUY; S$0.85]. We see this as a reflection of an increasingly alpha investment bias.

Cautiously optimistic mood at our Pulse of Asia seminar. The participating offshore and marine companies and institutional investors were more optimistic at our July seminar, vs. the one in January.

Clients' enquiries have returned. The corporates have seen a return of clients' enquiries since April, and believe that some contracts may be awarded from these project pipelines in 2H09. The higher oil price is commonly cited as the reason for this revival of talks with clients.

But, the awards of new orders are still pedestrian. There are only 6 construction/charter contracts awarded to the 7 companies that attended our July seminar since mid April. We are not optimistic on a quick return to huge orders flow in 2H09 despite the project backlog, unless prevailing bottlenecks are removed.

There exist bottlenecks to business expansion. We see wide credit spreads and high supply chain costs as contract award bottlenecks. The credit spreads are restraining offshore and marine companies from pumping money into asset/business expansion, while high supply chain costs are still discouraging clients from converting pipelines into actual orders.