Ezra Holdings

OCBC on 11 Sept 2012

Ezra Holdings (Ezra) recently announced that Triyards, its engineering and fabrication division, has received conditional eligibility to list on the Main Board of the SGX. The listing will be by way of an introduction whereby Ezra is proposing to distribute Triyards shares by way of dividend in specie to Ezra shareholders. We are positive on this development as this would allow the Triyards Group to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. The move may also allow Ezra and Triyards to leverage on each other for business opportunities. Ezra is currently trading at about 12x FY12F earnings; should the market assign a lower P/E multiple to Triyards, this would lower our sum-of-the-parts based valuation of Ezra, and vice versa. As the proposed move is subject to the approval of Ezra shareholders, we maintain our BUY rating with S$1.35 fair value estimate on Ezra for now.

Listing fabrication business via dividend in specie
Ezra Holdings (Ezra) recently announced that Triyards, its engineering and fabrication division, has received conditional eligibility to list on the Main Board of the SGX. The listing will be by way of an introduction whereby Ezra is proposing to distribute Triyards shares by way of dividend in specie to Ezra shareholders. In particular, Ezra proposes to distribute 33% of Triyards’ issued ordinary shares (or up to 107.2m shares) on the basis of one Triyards share for every 10 Ezra shares.

Impact on Ezra
Ezra will retain a 67% stake in Triyards after the proposed distribution and introduction. We note that Triyards’s FY11 net profit was US$8.47m vs Ezra’s US$40.4m over the same period. Assuming the proposed move had been completed on 1 Sep 2010 (FY end Aug), Ezra’s net profit would have slipped by about 7% to US$37.6m, while NTA would have dropped about 3.6% to US$650m. Ezra is currently trading at about 12x FY12F earnings; should the market assign a lower P/E multiple to Triyards, this would lower our sum-of-the-parts valuation for Ezra, and vice versa. If we were to assign a P/E of 9x to Triyards, this would lower our SOTP value by around 10%, unless Triyards secures a greater than expected amount of orders.

Sharper delineation of operations and leveraging on each other
We are positive on this development as this would allow the Triyards Group to tap capital markets independently from Ezra to pursue growth. As Triyards expands into new markets, Ezra’s offshore support division may also be able to use Triyards as a platform to expand its operations in these new markets. Meanwhile the proposed move is subject to the approval of Ezra shareholders at an EGM. Maintain BUY with S$1.35 fair value estimate on Ezra.