Ezra Holdings

OCBC on 13 Apr 2012

Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Looking ahead, the group’s subsea vessels should be fully utilised given the strong order book which is in excess of US$1b. Meanwhile, Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). With an upside potential of about 20.6%, we upgrade our rating to BUY.

2QFY12 results were within expectations
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Revenue increased in both the offshore support services and subsea services divisions in 2QFY12, due to contributions from an expanded vessel fleet and better performance from the AMC Group. Marine services, however, saw a slight decline of US$3.4m in turnover due to lower revenue recognized for engineering projects in Vietnam compared to 2QFY11.

Not much surprises on the gross margins side
Offshore support services historically had gross profit margins of 25-30%, and we understand that this was lower at around 20-25% in the last quarter due to some off-hire vessels. As for subsea services, AMC turned in gross profit in 2QFY12, but we estimate a net loss for the quarter. Management is guiding for gross margins of about 12-15% for the subsea segment going forward.

Subsea vessels may be fully utilised in 2HFY12
Management expects that the group’s subsea vessels should be fully utilised in 2HFY12. Barring any hiccups in execution, we estimate that this is likely to be the case for the most of FY13 as well given its strong subsea order book which is in excess of US$1b. Hence looking ahead, the focus would be on execution of projects.

Stock price has declined; upgrade to BUY
Ezra’s stock price has declined by 7.5% since we downgraded the stock to HOLD on 12 Mar 2012 vs the STI’s 0.5% gain and the FTSE Oil and Gas index’s 3.0% rise. As we roll over our valuation to an unchanged peg of 15x FY12/13F earnings for the offshore, marine and subsea business, our fair value estimate rises to S$1.35 (prev. S$1.28). Given that the stock now has an upside potential of about 20.6%, we upgrade our rating to BUY.