1QFY12 results in line; to tap debt markets this year?
● 1QFY12 results within expectations
● Subsea division continues to secure orders
● To look at debt markets for funds?
1QFY12 results within expectations.
Ezra Holdings (Ezra) reported a
138% YoY rise in revenue to US$180.5m but saw flat net profit of US$13.3m in 1QFY12. Results were within expectations, with the quarter’s revenue and net profit accounting for 24% and 20% of our full year estimates, respectively. Though gross profit margin fell from 34% in 1QFY11 to 19% in 1QFY12, this was expected with the change in sales mix with higher contributions from the subsea division by AMC. Sequentially, gross profit margin was higher compared to 4QFY11’s 14%.
Subsea division on track.
We learnt from the company that AMC’s loss has narrowed substantially from 4QFY12’s US$6-7m loss. The subsea division has also been building up its order book in the past half a year – compared to an order book of more than US$300m as at 14 Jul 2011, the figure has grown to an excess of US$800m currently. Along with contracts worth up to US$120m that were announced yesterday, Ezra’s current overall order backlog has exceeded a record US$1.6b. As more projects are executed this year, the subsea division is expected to turn around in FY12.
Expecting lower contribution from EOC in upcoming quarters.
EOC performed well in 1QFY12 – net profit was US$8.5m compared to US$0.6m in 1QFY11. Net profit also grew by 21.7% QoQ. However, upcoming results may be less rosy as Lewek Arunothai’s contract with PTTEP was terminated in Nov 2011 and is currently off-hire.
May tap debt markets this year?
Ezra’s net gearing remains at about 1.0x and we estimate that it may rise to about 1.3x in subsequent quarters. We take into account the group’s short-term debt, capital expenditure plans and an out-of-the-money convertible bond, and estimate it would need to prepare at least US$460m for these purposes. To avoid dilution on the part of equity holders, we think it is likely that the group may look to the debt markets for funds this year. Meanwhile, we maintain our BUY rating and S$1.36 fair value estimate on the stock.
1QFY12 results below expectations; maintain Neutral. Ezra reported 1QFY12 net profit of US$13.3m (+7% YoY, flat QoQ), which accounted for 22% of our FY12F forecast. Stripping out forex gain of US$12.8m, net profit would have been much lower. As expected, Ezra incurred higher admin cost on the integration of Aker Marine Contractors (AMC) and its expansion program. Annualised admin expenses were 16% higher than our forecast. Following the results, we lower our FY12-13F EPS by 11-14% largely due to higher expenses and lower contribution from its associate, EOC. We maintain Neutral rating with a lower TP of S$0.92 (from S$1.06) based on an unchanged target P/E of 12x on FY12F EPS.
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