• Decent quarter
• Corporate restructuring
• Maintain HOLD

A more decent quarter

Ezra Holdings reported a 27% rise in revenue to US$402.1m and a 16% increase in net profit to US$8.3m in 3QFY14, such that 9MFY14 net profit of US$34.2m accounted for 77% of our full year estimate. Stripping out a US$16.6m disposal gain in 2QFY14, core net profit was about US$19m in the nine-month period, which was still slightly below our expectations. We do note, however, the lumpiness of quarterly earnings. For this quarter, core net profit of about US$8.3m was at least higher than 2Q’s US$3m and much better than 3QFY13’s double-digit net loss.

4QFY14 likely to be alright as well

In line with management’s guidance, results improved sequentially, and we expect 4QFY14 to see a similar level of operating profit, barring unforeseen circumstances. In 3QFY14, gross margins for the offshore support division and the subsea segment were around the mid-teens, and management expects utilisation in the offshore services segment to improve as well.

Corporate restructuring with EOC to be listed in Singapore too

Meanwhile, the company has proposed a corporate restructuring which involves the injection of its offshore support business into its associate, EOC, which will then seek a secondary listing on the SGX. EOC will pay US$520m to Ezra, consisting of US$150m in cash and US$370m by allotment of new shares (at NOK8.18/share). If successful, this will lower the group’s gearing and allow for greater transparency which will facilitate financial valuation of the stock. Management has also expressed its interest in listing its subsea business at a later date, though this would mean that Ezra would pretty much become a holding company with various listed entities.

Maintain HOLD

Should core earnings prove to be more sustainable in subsequent quarters, we would switch to an earnings valuation. Meanwhile, rolling forward our valuation to 0.9x FY15F P/B, our fair value estimate rises to S$1.32. Maintain HOLD.

Source: OCBC Research - 14 Jul 2014