Ezra Holdings

UOBKayhian on 28 Aug 2015

FY15F PE (x): 5.1
FY16F PE (x): 5.7

Ezra enters into a 50:50 JV with Chiyoda for US$180m cash consideration. Ezra announced that it has signed a binding MOU with Chiyoda Corporation (Chiyoda is a 33%-owned associate of Mitsubishi Corp) for a 50:50 JV in Ezra’s subsea business EMAS-AMC for a cash consideration of US$180m. EMAS-AMC will be renamed EMAS Chiyoda Subsea (ECS). Chiyoda is a leading Front End Engineering Design (FEED) and Engineering Procurement and Construction (EPC) company in the oil and gas industry. Maintain target price at S$0.176, based on 0.3x FY16F P/B. The four global deepwater subsea peers are currently trading at an average FY16F P/B of 1.3x, skewed by Oceaneering (2.5x). Subsea 7, the second largest subsea player globally, is trading at 0.4x 2016F P/B with an ROE of 3%. While the Ezra-Chiyoda deal is a binding MOU, it is pending a firm agreement. Thus, we keep our P/B valuation at 0.3x, which translates to a target price of S$0.176. Upgrade to BUY. Share price has collapsed 32% since July owing to recent upheavals in the stock markets. With a 54% upside to our target price, and the emergence of a strong JV partner behind the subsea business, we upgrade our call on Ezra from HOLD to a trading BUY.