Unlocking subsea value in-progress.

Management is actively looking for ways to unlock value in its subsea business, EMAS AMC, and a potential listing in the US/Europe is one of the options. This process could take several months, but if the listing of EMAS AMC materializes, we believe it will (i) optimize the firm’s competitive position, (ii) improve its international profile and access to capital, and (iii) ultimately unlock value for shareholders.

Long-term prospects intact, but near-term headwind remains.

Albeit the long-term fundamental for subsea market remains robust, with significant capital investment in offshore infrastructure worth more than US$140bn expected from 2014 to 2018, the outlook remains muted in the nearterm. In fact, in the recent market commentary by Subsea 7 (one of the top 3 subsea players in the industry), it expects delays in project awards to remain a feature of the subsea industry, driven by clients’ capex constraints. With new assets coming into the market within the next few years (McDermott’s DLV2000 scheduled for delivery in mid-2015, Petrofac’s JSD 6000 scheduled to be delivered by early 2017), we expect increased competition to put downward pressure on tendering price, which could ultimately affects profitability (see sector report “Offshore sector turning less positive”, for more discussion on the Offshore Marine sector outlook).

Neutral reiterated.

We find the shares fully valued. Albeit Ezra’s 1Q14 order backlog stood at ~US$2bn, we remain concern with project execution risk, and its ability to translate strong top-line to earnings growth. We maintain our Neutral recommendation, while we have lowered our target price from S$1.27 to S$1.18, based on 13.0x FY15E P/E (previously 14.0x, to reflect the continued near-term headwinds).

Source: Phillip Securities Research - 7 Apr 2014