Tuesday 16 April 2013

Ezra Holdings

OCBC on 15 Apr 2013

Ezra Holdings (Ezra) reported a 17% YoY increase in revenue to US$247.1m and a 34% rise in net profit to US$29.7m in 2QFY13. However, we note that net profit in the quarter was bumped up by a US$30m disposal gain on fixed assets; excluding that, core net profit was minimal and below our expectations. The sub-par results were mainly due to lower vessel utilisation in the offshore support services segment and the subsea services segment. There is also a three-month delay for the Lewek Express, which will now start work in Jul/Aug 2013. According to management, uncertainty in the Eurozone has weighed on sentiment, and project execution and awards have been delayed. We have lowered our core earnings estimates due to the delays and possibly heightened project risks. As such, our SOTP-based fair value estimate slips to S$1.10 (prev. S$1.30). Maintain HOLD.

2Q13 net profit bolstered by disposal gains
Ezra Holdings (Ezra) reported a 17% YoY increase in revenue to US$247.1m and a 34% rise in net profit to US$29.7m in 2QFY13. However, we note that net profit in the quarter was bumped up by a US$30m disposal gain on fixed assets (sale-and-leaseback of vessels); excluding that, core net profit was minimal and below our expectations. The sub-par results were mainly due to lower vessel utilisation in the offshore support services and the subsea services segments. 

Lower vessel utilisation, delay in vessel delivery
In the offshore support division, utilisation rate was at one point lower than 90%, but has recovered since. This was due to administrative issues in India due to the cabotage rule (three vessels were affected), as well as reflagging and maintenance of a few other vessels. In the subsea division, we estimate utilisation rate of about 55% due to 1) slowdown of offshore activities in the North Sea during the winter months, and 2) failure in materialisation of certain plans for vessel utilisation due to changes in clients’ schedules. The group also updated that there is a three-month delay for the Lewek Express (DP Dual-Reel Lay vessel), which will now start work in Jul/Aug 2013.

Secures US$120m worth of contracts
Ezra also announced that it has secured four contracts worth close to US$120m, two of which were from the subsea division for work in the Gulf of Mexico and West Africa. The subsea order backlog currently stands at more than US$1.1b. .

Maintain HOLD
According to management, uncertainty in the Eurozone has weighed on sentiment, and project execution and awards have been delayed relative to industry participants’ expectations in 2012 and early 2013. We have lowered our core earnings estimates for FY13-14 by 8-25% due to the delays and possibly heightened project risks. As such, our SOTP-based fair value estimate slips to S$1.10 (prev. S$1.30). Maintain HOLD.

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