Towards Financial Freedom
Ezra Holdings - Studying Options To Unlock Subsea Value
Ezra's 1QFY14 USD6.6m core earnings (+137% y-o-y, -7% q-o-q) were in line with our estimate. Revenue rose 22% y-o-y as it carried out more subsea work but overall GPM fell due to higher contribution from its lower-margin subsea unit and lower fleet utilisation at offshore support services. Ezra is considering options to unlock EMAS AMC's value, but we think these may take time as subsea profitability is far below its earnings potential. Maintain SELL, with a SGD0.75 TP.
- Revenue higher, but margins shrink. Ezra's 1QFY14 headline net profit came in at USD6.3m (-6% y-o-y, -37% q-o-q). Excluding exceptional items, its core net profit of USD6.6m (+137% y-o-y, -7% q-oq) was in line with estimates. 1QFY14 revenue rose 22% y-o-y to USD340m, buoyed by higher subsea revenue (+USD59m). However,GPM weakened to 14.9% vs 17.9% in 1QFY14 and 4QFY13 as its offshore support services unit experienced lower fleet utilisation.
- Management targets >USD1bn new subsea orders annually. Ezra's backlogged orders total >USD2bn and the company is now bidding for a record USD9bn worth of new jobs globally.
- Low contribution from Lewek Constellation in FY14. The ice-class multi-lay DP3 vessel is in transit to China to install the 3,000-tonne Huisman crane, and will head for its maiden project for VAALCO Gabon for the expansion of the Etame Marin Field . After that, it will head for a shipyard again to install a pipelay tower. We estimate that Lewek Constellation will only be available for two to three months in FY14. The total cost of the vessel is now estimated at USD550m.
- Reviewing several initiatives to unlock value. Management is looking at several proposals to unlock value in its subsea unit, EMAS AMC, and we believe a spinoff is possible.
- Maintain SELL, with a SGD0.75 TP. The weak results reinforce our SELL call on the stock, whose valuations remain rich at 26x FY14F P/E, 14x EV/EBITDA and 1.0x P/BV. Our TP is based on 0.6x FY14F P/BV. We think it is too early to turn positive, while unlocking value from EMAS AMC may be challenging unless subsea earnings improve significantly.
Financial Exhibits
SWOT Analysis
Company Profile
Ezra is a leading integrated offshore support solutions provider for the oil and gas industry with strong expertise in the mid/deepwater market.
Ezra is a leading integrated offshore support solutions provider for the oil and gas industry with strong expertise in the mid/deepwater market.
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Source: RHB
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