Tuesday, July 16, 2013

Ezra : Turbulent waters (DBSV)

Ezra Holdings
STI : 3,236.06
Downgrade from BUY
Price Target : 12-Month S$ 0.90 (Prev S$ 1.56)
Turbulent waters

• Disappointing core net loss of US$58m in 3Q13
• Write-offs on legacy projects and project delays lead to negative contribution from subsea
• Order win momentum sustained but execution risks will likely overshadow
• Low visibility on margin recovery, downgrade to Fully Valued with lower TP of S$0.90

3Q significantly below. Stripping out exceptional gains of about US$65m, including gains on disposal of its remaining stake in Ezion,
Ezra would have recorded a core net loss of about US$58m in 3Q-FY13. The underperformance was driven by i) negative contribution from subsea division as a result of project delays in the North Sea, adverse timing of revenue receipts and write-offs related to legacy projects and ii) lower revenue and weaker margins from the offshore chartering division owing to sub-optimal utilisation of fleet. Admin expenses were also higher than normal levels.

Order wins continue. The subsea division EMAS AMC reported order wins of about US$400m across North Sea, West Africa and Gulf of Mexico, taking YTD order wins to US$1.4bn. However, with most projects requiring long lead times and stretching from 2014 to 2016, near term impact is not significant. We continue to expect another US$1.5bn worth of new subsea contracts in FY14.

But execution is the main concern. Apart from costs associated with certain legacy projects, project delays and other risks associated with offshore EPC contracts will continue to impact Ezra’s subsea operations, in our view. The integration of AMC has taken longer than expected and we rationalize our margin expectations, going forward. As a result, we now forecast a full year core net loss of US$55m and cut our FY14 net profit forecast by 46% to US$37m. Our SOTP valuation is revised down to S$0.90, based on 0.8x P/BV for Ezra’s core operations, down from 1.15x P/BV earlier, to account for lower margins and ROEs as well as risks associated with a highly geared balance sheet amidst a potentially rising interest rate environment in future. Downgrade to Full Valued.

Source/Extract/Excerpts/来源/转贴/摘录: DBS Vickers Research
Publish date: 12/07/13

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