Ezra Holdings

DMG & Partners Research, July 15

EXCLUDING a U$59 million gain from one-off items, Q3 FY2013 core net loss of US$52 million was below our and consensus expectations. Q3 FY2013 revenue rose 19 per cent y-o-y and 28 per cent q-o-q to US$317 million on higher subsea and marine revenue, but blended gross profit margin was disappointing at 0.7 per cent (Q3 FY2012: 16.7 per cent).

Significant one-off items were: i) a US$67.4 million gain from Ezion shares sale, ii) a US$4.5 million gain from derivative financial instruments, iii) a US$7.2 million loss from fixed assets sale, and iv) a US$5.2 million net forex loss.

Q3 FY2013 operating Ebitda came in at -US$24.3 million, while nine-month FY2013 operating Ebitda was US$29.2 million versus our pre-revision estimate of US$143 million.

The subsea division posted negative mid-teen margin in Q3 FY2013, while the offshore unit recorded a 17 per cent-18 per cent gross margin. Ezra reshuffled the top management team in its offshore division.

Ezra secured US$505 million new contracts for the subsea and offshore subsea services (OSS) units. YTD FY2013, EMAS AMC has secured US$1.4 billion orders and more than US$2.5 billion since the AMC acquisition in March 2011. Currently, Ezra has a US$2 billion orderbook backlog.

We cut FY2013 forecast earnings from a core net profit (after preferred dividend) of US$19 million to a core net loss of US$61 million. We also lower FY2014-15 forecast core net profit from US$49 million/ US$73 million to US$37.6 million/ US$64.6 million.

Downgrade to "sell", with a lower S$0.70 target price, pegged to 0.5 times FY2014 forecast P/B. Our target P/B is justified by its poor ROE of less than 5 per cent and gearing. At our target price, the stock is valued at 14.6 times FY2014 forecast EPS.

SELL