Company News

Micro-Mechanics posted a 96% YoY increase in its net profit to S$2.7m for 2QFY15 and raised its interim dividend payout to 2 S-cents/share for 1HFY15.

MTQ Corporation saw a 66% YoY decline in 3QFY15 PATMI to S$2.21m, due to lower profits from Singapore and losses from Binder Group.

Hai Leck Holdings expects a significant drop YoY in its net profit for 2QFY15, attributing to lower revenue and decline in gross profit margin.

Santak Holdings expects a loss before taxation for 1HFY15, due to lower gross margin and significant costs incurred.

Roxy-Pacific’s associates will acquire a hotel development land parcel in the central business district of Perth, Australia for AUD17m.

Perennial Real Estate Holdings made a letter of participation in relation to acquiring 31.2% equity interest in AXA Tower for S$1.17b.

Ezra’s subsea services division has secured several contracts exceeding US$65m. The Group has also won more than US$355m worth of contracts since the start of 2015.

Japfa strengthens its poultry operations in Myanmar by acquiring the remaining 15% interest in Japfa Comfeed Myanmar it does not own for US$5.7m.

Rex International Holding has signed a farm-in agreement with Tulip Oil Holding’s 90% subsidiary, Rhein Petroleum, to acquire a participating interest in a prospect area known as Altweide, within the exploration licence area of Nördlicher Oberrhein, located in the geological province of Upper Rhine Graben, Germany.

IEV Holdings has secured a contract in India for the supply of its proprietary Marine Growth Preventer (MGP) products valued at a total of approximately US$1.3m.

Hiap Seng Engineering is expected to record a net loss for 3QFY2015 and 9MFY2015. The weaker than expected financial performance is mainly attributable to cost overruns on certain projects.

Blumont Group is expected to report net losses for 4Q2014 and FY2014. The expected losses primarily arose from the fair value readjustments of the Group’s investments in transferable securities (financial assets), attributable to the recent volatility in the financial markets and global economy.

Ezra Holdings working in a tough environment

Poor share price performance YTD
The share price of Ezra Holdings has dropped by about 30% since the start of Sep, and has lost almost half of its value YTD. Looking back, we had a Sell rating on the stock in the beginning of the year, after which the share price fell by about 30%. After an upgrade to HOLD in Apr, the stock has been pretty much range-bound before being hit by the recent oil price volatility. With the end of our blackout period on the stock and its related entities due to the listing of subsidiary EMAS Offshore, we now review our rating on Ezra Holdings.

One of the hardest hit from recent oil price drop
In terms of share price performance, the company has been one of the hardest hit with the recent oil price fall, as it has a more deepwater-focused fleet. Its subsea segment also has exposure to the North Sea and there have been concerns about delays in project awards as well. As for the company’s operations, however, we note that FY14 (year end Aug) has actually been a better year in terms of core earnings (~US$29m vs. core net loss of ~US$37m in FY13).

Risks tilted more to the downside
Looking ahead, we believe that the company has to demonstrate sustained utilisation levels in the OSV division after having repair and maintenance issues for some vessels in

Ezra Holdings - An alright quarter

Ezra Holdings reported a 27% rise in revenue to US$402.1m and a 16% increase in net profit to US$8.3m in 3QFY14, such that 9MFY14 net profit of US$34.2m accounted for 77% of our full year estimate. However, stripping out a one-off gain of US$16.6m in 2QFY14, 9MFY14 core net profit of US$18m only met 52% of our full year estimate.

Gross profit margin improved from 1% in 3QFY13 to 16% in 3QFY14 (similar to 2QFY14’s 16% as well) as there were no surprises in the subsea division (which impacted earnings in 3QFY13).

Currently the group’s order book stands at US$2b, and management is cautiously optimistic that its core operating performance in FY14 will be better than that in FY13. Pending a conference call later, we maintain our HOLD rating but put our fair value estimate of S$1.05 under review.

Ezra 2Q13 earnings miss on margins pressure

What’s new?
Ezra announced 2Q14 ‘reported’ net profit of US$19.6mn (-34% yoy). Adjusting for US$16.6mn one-off gain from associate, EOC Limited, resulting from the sale and leaseback of Lewek Champion, 2Q14 earnings saw a net profit of ~US$3.0mn. 2Q14 sales rose by 22% yoy to US$300mn, mainly driven by higher subsea business contribution. Albeit overall gross margin decreased from 17.1% in 2Q13 to 15.9% in 2Q14, it was higher than the 14.9% in 1Q14.

How we view this
While 1H14 sales of US$640mn (+22% yoy) was 44%/43% of PSR/consensus forecast, 1H14 ‘recurring’ net profit of US$6.9mn (before perpetual dividend) was 15%/14% of PSR/consensus forecast. We expect stronger performance in 2H14 due to seasonality of its subsea business.

Subsea fleet utilization has improved steadily on a yoy basis from 64% in 1H13 to

Ezra Holdings 1QFY14 results within expectations

Ezra Holdings reported its 1QFY14 results this morning, with revenue growing 21.9% YoY to US$339.8m (25% of our full-year estimate) but PATMI declined 6.1% to US$6.3m. However, if we strip out exceptional items such as forex losses and a gain on dilution of interest in an associated company, we estimate core PATMI to come in at US$6.7m, or a 57.2% YoY jump.

This formed ~20% of our FY14 core PATMI forecast, which we view as in line with our expectations. Ezra’s Subsea Services division was its main revenue driver for 1QFY14, with a US$59.5m revenue increase thanks to more projects undertaken, additional variation orders and contribution from two new subsea construction vessels (delivered in 4QFY13).

This division also managed to record its second consecutive quarter of operational profit. We will provide more details after the conference call with management.

For now, we have a SELL rating and S$0.99 fair value estimate on Ezra.

Ezra Holding higher subsea order wins

PROGRESS ON ALL FRONTS
• Higher subsea order wins estimate
• Up fair value to S$1.48
• May drop to S$1.40 post

Triyards listingListing fabrication business via dividend in specie
Ezra Holdings (Ezra) recently announced that Triyards, its engineering and fabrication division, has received conditional eligibility to list on the Main Board of the SGX. The listing will be by way of an introduction whereby Ezra is proposing to distribute Triyards shares by way of dividend in specie to Ezra shareholders. In particular, Ezra proposes to distribute 33% of TRIYARDS’ issued ordinary shares (or up to 107.2m shares) on the basis of one Triyards share for every 10 Ezra shares.

Positive on corporate restructuring
Over the years, Ezra has grown from a pure play offshore vessel charterer to a group which also has FPSO operations, engineering and fabrication capabilities, as well as a subsea business. An equity carveout increases information transparency, improving investors’ understanding of the parent’s (i.e. Ezra) firm value. Meanwhile, Triyards would also be able to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. As Triyards expands into new markets, Ezra’s offshore support division may also be able to use Triyards as a platform to expand its operations in these new markets.

Fluctuation in Triyards’s price has a small impact on Ezra
Assuming Triyards trades at 9x FY13F earnings with a share price of

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:

Ezra 2HFY12 to be even better

Fair value S$1.35

2QFY12 results were within expectations
Ezra Holdings (Ezra) reported a 114% YoY rise in revenue to US$211.8m and a 177% increase in net profit to US$22.1m, such that 1HFY12 revenue and net profit both accounted for 52% of our full year expectations. Revenue increased in both the offshore support services and subsea services divisions in 2QFY12, due to contributions from an expanded vessel fleet and better performance from the AMC Group. Marine services, however, saw a slight decline of US$3.4m in turnover due to lower revenue recognized for engineering projects in Vietnam compared to 2QFY11.

Not much surprises on the gross margins side
Offshore support services historically had gross profit margins of

Ezra stronger-than-expected quarterly earnings

TP - S$1.25

We believe a formal announcement is due when the contract is finalised as EOCL is reported by Upstream to have received a letter of intent. Maintain Outperform and target price, at 10.5x CY13 P/E. No change to our EPS for now.

What Happened
According to Upstream, Hess has awarded a letter of intent to Ezra’s associate, EOCL, for the supply of a FPSO on a 3-year charter, plus options for extensions. The vessel, which will store up to 350,000 barrels of liquid, will be deployed in the North Malay Basin off Terengganu, Malaysia. It will be installed alongside a wellhead platform under fabrication at Lumut-based Kencana HL at the Kamelia field. EOCL is reported to have outbid Malaysian operators, Bumi Armada and Ramunia Holdings.

What We Think

Ezra announces placement to raise funds

The news: Last Friday, Ezra entered into an agreement to place out 110m new shares at S$1.10 per share to raise a net proceed of S$118.8m. The number of new shares was 12.7% of the existing shares and the placement price was a 9% discount from its last closing price. We have previously highlighted that Ezra may raise new funds to ease its balance sheet constraints and we are not surprised by the move. Following the recent sale of 60m Ezion shares and the placement, we estimate that:
(1) net gearing will ease from 1.04x to 0.88x; and
(2) FY12-13F EPS will be diluted by 10% and 9% respectively.

We maintain our Neutral rating on the stock and TP is unchanged at S$1.18. Our TP values the stock at 13.3x blended FY12/13F EPS, a 25% discount to global peers P/E. The lower discount (from 35%) reflects the improving balance sheet.

Ezra Holding movement chart

Background:
Ezra (5ND.SI) is an integrated offshore support solutions provider for the oil and gas industry. The business was founded in 1992 and is headquartered in Singapore. Ezra was listed on the Singapore Exchange Securities Trading Limited ("SESDAQ") and promoted to Mainboard on 8th December 2005. Ezra also enjoys a good business network and has built strong customer relationships that have enabled us to retain existing customers and secure new businesses.

Ezra Holdings 1QFY12 results within expectations

Ezra Holdings - Fair Value S$1.36

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