Ezra Holdings

DBS Group Research, Oct 28

CORE net profit for Q4 FY2013 came in at about US$10.1 million, higher than our estimate of about US$5 million.

The outperformance was mainly driven by higher revenue contribution from the subsea division in a seasonally strong quarter and good performance from associates (EOC and Perisai).

The offshore chartering division's performance improved with utilisation recovering to above 90 per cent as a large part of the fleet was redeployed back to Asia.

While spot rates for OSVs have been recovering, the benefit to the group is likely to be gradual over the next few years as the majority of the fleet is on long-term charters.

Subsea division EMAS AMC turned around in Q4, with gross margins in the mid-teens, a significant improvement over the losses incurred in Q3 2013 (including write-offs related to legacy projects). Subsea orderbook now stands at about US$1.25 billion, about half of which will be delivered in FY2014.

The group is also actively bidding for about US$5 billion-US$6 billion worth of subsea contracts. We maintain our new order win assumption of US$1.5 billion for the subsea division in each of FY2014/ 15.

Upgrade to "hold". Based on Q4 FY2013's performance, we believe execution is improving and the worst seems to be over for the subsea division, with almost all legacy projects completed now. Thus, we raise our FY2014 forecast earnings (after preference dividend) by 33 per cent on better margin assumptions.

Our target price is also raised to S$1.34, as we raise our P/B peg for the core business to 1.15 times (average multiple post- global financial crisis), in anticipation of the near- term recovery trend.

We believe the robust share price performance in recent weeks has priced in some of the expected earnings recovery, but we recommend holding on to the stock in view of improving execution and potential for realising strategic options for the subsea division.

HOLD