4Q12 results were below ours and street expectations as the bottom line took a hit from higher-than-expected admin expenses (+53% YoY) and taxes. We cut FY13-14F net profit estimates by 13% and 3% respectively as we factor in lower OSV margins and higher admin expenses. In FY13, we expect: (1) headline net profit (after preferred dividends) will be flat given lower non-recurring gains. (2) Net gearing to remain at ~1.0x in FY13. Ezra needs to add more subsea orders to improve earnings visibility. Maintain Neutral with a TP of S$1.15. Stock now trades at 15x FY13F P/E and we see little catalyst to drive P/E expansion.

Bulk of FY12 net profit came from non-recurring gains. 4QFY12 net profit of US$7.3m (-41% YoY, -68% QoQ) was below our estimate of US$17m and street estimate of US$28m. FY12 net profit of US$65m (+62% YoY) included: (1) US$34.8m gain from sale of shares in Ezion, (2) US$8.5m gain from fair value adjustment of derivative financial instruments (3) US$6.5m gain from dilution of
interest in associate companies and US$9.9m forex gain. Excluding the nonrecurring items and forex gain, FY12 net profit would have been US$5m.

Strong subsea tendering; OSV margins may pick up. (1) The outlook for subsea work remains robust. Ezra has a net subsea order book of US$800m and is bidding for US$4.4b of new jobs. Management aims to secure US$1b new orders per annum. (2) There is a pickup in demand for bigger offshore support vessels (OSVs) but the outlook for shallow water OSVs remains challenging.
OSV gross margin in FY12 was sharply lower at <20% due to a combination of higher off-hire days and lower day rates. Ezra is guiding for improvement in FY13 due to lower mandatory off-hire days and higher charter rates.

Higher new hires could weigh down on earnings in FY13. Ezra is expected to spend more on new hires to support its global operations. As all the hiring costs are front loaded well before any earnings, this will weigh down on FY13 earnings. Our FY13-14F net profit estimates are 14-26% below consensus. We adjust our TP marginally from S$1.14 (12x FY13F P/E) to S$1.15 based on 0.85x P/B.