Ezra Holdings: Tepid 2Q performance

2QFY09 results within expectations. Ezra Holdings (Ezra) released its 2QFY09 results yesterday. Topline increased by 30% YoY but fell 44% QoQ to US$63m. This was largely due to the decline in contribution from Energy Services (from US$39.9m in 1QFY09 to US$6.4m in 2QFY09) as the previous contract with STP Energy had been completed. The breakdown of revenue was Offshore Support Services (US$43.9m), Marine Services (US$12.7m), and Energy Services (US$6.4m). Core operating profit, excluding forex gain, was US$16.1m, an improvement of 58% YoY and QoQ. Going forward, we expect revenue and operating profit to mirror this quarter’s results.

Need to keep an eye on the receivables. Ezra’s collection period gapped up to 271 days on an annualised basis for 1H09 as compared to 127 days in FY08. Management said this was largely due to the revenue mix which resulted in different receivables’ collection periods. In our view, as Ezra moves to managing new or longer gestation projects, it would be important to keep a tight control. As a result, Ezra’s cash conversion cycle increased from 100 days as at end FY08 to 130 days as at 1H09.

Anchored three AHTS chartering contracts. In addition, Ezra announced new and renewal contracts of three AHTS with charter periods of up to two years valued at US$47m. Our back-of-the-envelope calculations suggested that the chartering rate was at an average of US$2.22 per bhp/day. This rate is slightly higher than the guided US$2 per bhp/day, suggesting that there is still demand for Ezra’s higher capacity AHTS.

Maintain Neutral. We are leaving our FY09 and FY10 estimates intact for now. Given Ezra’s exposure to contingent liabilities arising from sale-and-leaseback financing and a fleet comprising of high capacity vessels, we opine Ezra’s greatest risk is a reduction in chartering rates. Our target price is revised up to S$0.72 (from S$0.45 previously) based on revisions to our SOTP valuation. As Ezra share price has risen 61% in the past month, and given that our assumptions remain intact, we do not find further upsides from current levels justifiable by fundamentals.

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