Ezra Holdings Ltd
(April 12, S$2.41)
Maintain buy at S$2.55 with fair value of S$2.75: We are positive on Ezra's acquisition of a 20% stake in Malaysia-listed Perisai Petroleum Teknologi Bhd (Perisai) for RM64 million at a fair CY10F price earnings (PE) of nine times. While Perisai's earnings largely stem from its derrick lay barge Enterprise 3 (chartered by SapuraCrest Petroleum), the company holds the patent to a self-installing integrated production storage platform called the mobile offshore production and storage unit (Mopsu) for marginal oil fields. The marketing of Mopsu will likely be led by Ezra.
Ezra's1HFY10 net profit of US$29 million (RM93.09 million) was within expectations, accounting for 33% of FY10F earnings of US$86 million and 35% of street estimates of US$84 million. In comparison, 1HFY09 accounted for 35% of FY09 net profit. Hence, we maintain our FY10F to FY12F earnings.
Ezra's 1HFY10 net profit rose 18% year-on-year despite a 23% decline in group revenue to US$135 million, mainly reduced by the completion of a major drilling contract by its deepwater subsea services division in 1HFY09 and redeployment of offshore support vessels. But net profit still rose due to the doubling of associate contributions and a sharp drop in effective tax rate to 4% (from 21% in 1HFY09), stemming from a higher proportion of tax-exempt charter income from marine vessels.
The group's 2QFY29 net profit declined 44% quarter-on-quarter to US$10 million despite a 22% revenue increase to US$75 million. Higher revenue stemmed from a five-time increase in its marine services' low-margin procurement and equipment supply activities. Coupled with lower revenue from offshore support services (-29%) due to redeployment and maintenance schedules, this resulted in 2QFY10 gross margin falling to 25% from 32% in 1QFY10.
The group's two multi-functional support vessels - Lewek Fulmar and Falcon - will be delivered in August 2010 and March 2011 respectively, while DP3 deepwater subsea construction vessel Lewek Crusader will arrive in August 2010. The addition of platform supply vessel Lewek Aries (3,600 DWT) and the 8,000bhp AHTS vessel Lewek Merlin in March-April this year raised Ezra's fleet under its management to 31.
The group's net debt of 48% as at Feb 28, 2010 should remain manageable despite capital expenditure of US$100 million in FY10F to FY11F given Ezra's growing earnings base.
Ezra's prospects remain bright as it recently secured new contracts worth US$79 million comprising new and renewal charters for its AHTS vessels while its marine services division was awarded a US$50 million engineering and fabrication contract. The deepwater subsea services division's energy services unit also recently won its second drilling and well intervention contract.
Ezra currently trades at a fair core CY10F PE of 14 times - a slight discount to Singapore's oil and gas (O&G) peers of 15 times. We remain positive on Ezra due to its aggressive moves to expand its operations into higher margin subsea operations and the addition of new vessels which will propel the group's earnings prospects.
Hence, we maintain our buy call with a fair value of S$2.75/share, pegged to a CY2010F PE of 15 times.- AmResearch, April 12
This article appeared in The Edge Financial Daily, April 13, 2010.
(April 12, S$2.41)
Maintain buy at S$2.55 with fair value of S$2.75: We are positive on Ezra's acquisition of a 20% stake in Malaysia-listed Perisai Petroleum Teknologi Bhd (Perisai) for RM64 million at a fair CY10F price earnings (PE) of nine times. While Perisai's earnings largely stem from its derrick lay barge Enterprise 3 (chartered by SapuraCrest Petroleum), the company holds the patent to a self-installing integrated production storage platform called the mobile offshore production and storage unit (Mopsu) for marginal oil fields. The marketing of Mopsu will likely be led by Ezra.
Ezra's1HFY10 net profit of US$29 million (RM93.09 million) was within expectations, accounting for 33% of FY10F earnings of US$86 million and 35% of street estimates of US$84 million. In comparison, 1HFY09 accounted for 35% of FY09 net profit. Hence, we maintain our FY10F to FY12F earnings.
Ezra's 1HFY10 net profit rose 18% year-on-year despite a 23% decline in group revenue to US$135 million, mainly reduced by the completion of a major drilling contract by its deepwater subsea services division in 1HFY09 and redeployment of offshore support vessels. But net profit still rose due to the doubling of associate contributions and a sharp drop in effective tax rate to 4% (from 21% in 1HFY09), stemming from a higher proportion of tax-exempt charter income from marine vessels.
The group's 2QFY29 net profit declined 44% quarter-on-quarter to US$10 million despite a 22% revenue increase to US$75 million. Higher revenue stemmed from a five-time increase in its marine services' low-margin procurement and equipment supply activities. Coupled with lower revenue from offshore support services (-29%) due to redeployment and maintenance schedules, this resulted in 2QFY10 gross margin falling to 25% from 32% in 1QFY10.
The group's two multi-functional support vessels - Lewek Fulmar and Falcon - will be delivered in August 2010 and March 2011 respectively, while DP3 deepwater subsea construction vessel Lewek Crusader will arrive in August 2010. The addition of platform supply vessel Lewek Aries (3,600 DWT) and the 8,000bhp AHTS vessel Lewek Merlin in March-April this year raised Ezra's fleet under its management to 31.
The group's net debt of 48% as at Feb 28, 2010 should remain manageable despite capital expenditure of US$100 million in FY10F to FY11F given Ezra's growing earnings base.
Ezra's prospects remain bright as it recently secured new contracts worth US$79 million comprising new and renewal charters for its AHTS vessels while its marine services division was awarded a US$50 million engineering and fabrication contract. The deepwater subsea services division's energy services unit also recently won its second drilling and well intervention contract.
Ezra currently trades at a fair core CY10F PE of 14 times - a slight discount to Singapore's oil and gas (O&G) peers of 15 times. We remain positive on Ezra due to its aggressive moves to expand its operations into higher margin subsea operations and the addition of new vessels which will propel the group's earnings prospects.
Hence, we maintain our buy call with a fair value of S$2.75/share, pegged to a CY2010F PE of 15 times.- AmResearch, April 12
This article appeared in The Edge Financial Daily, April 13, 2010.
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