Ezra subsea contracts above USD1b

- Ezra delivered 2QFY8/12 net profit of USD22m, but this would have been a net loss of USD13m if the one-time disposal gain of USD35m was stripped out. Despite the dismal performance, some bright spots point to more positive results ahead.

- Its subsea orderbook has swelled to more than USD1b with about half of this expected to be recognised in FY8/12. It is also currently bidding for USD4.4b worth of contracts.

- Oversupply in the OSV market could ease and would bode well for Ezra. But beware its net gearing level, which has been on an uptrend.

Recent developments:
Stripping out a USD34.8m onetime gain on disposal of available-for-sale (AFS) investments, Ezra would have been in a net loss position of USD13m for 2QFY8/12, against a reported net profit of USD22m. Despite the dismal performance, there are some bright spots going into 2HFY8/12 and beyond, especially for its subsea business.

Our view
Subsea contracts above USD1b. Following the acquisition of Aker Marine Contractors (AMC) in March last year, Ezra’s subsea capabilities have expanded, with the segment accounting for almost half of its 1HFY8/12 revenue. Total subsea orderbook has exceeded USD1b with more than half of all orders expected to be recognised in FY8/12. Barring any hiccups in execution, this should imply a stronger 2HFY8/12 performance. Additionally, Ezra is bidding for about USD4.4b worth of projects in the North Sea, Africa, Asia Pacific and the Americas.

OSV market seeing recovery. The oversupply in the Offshore Support Vessel (OSV) market could ease in 2013/2014, leading to a recovery in charter rates. This would bode well for Ezra’s Offshore Support Services segment.

Beware its high gearing. Ezra’s gearing level has increased steadily from 0.12x in FY8/09 to 1.1x as at 2QFY8/12. Operating cash flows are weak and we do not rule out the possibility that it may need to take on more debt or raise more funds.