Ezra Holdings: Ahead of the class

Ezra reported headline net profit of US$18.8m (+8% y-o-y) on revenue of US$59.9m, up 9% y-o-y mainly on the back of an expanded vessel fleet. Excluding exceptionals which resulted from 1) insurance claim on Titan 1 of c. US$8m, 2) loss on termination of the Karmsund MFSVs of US$7.1m due to USD/NOK exchange rate differences, and 3) bad debts recovered net of provisions of US$1.4m, recurring net profit is estimated to be US$16.6m (+21% y-o-y, +14% q-o-q), slightly above our forecast of US$15.5m. While gross margins for the respective divisions remain relatively stable, overall gross margins improved 8.1ppt y-o-y to 36.8% due to the relatively greater contribution from the higher-margin offshore division.

Net gearing as of end 3Q09 remained at 0.4x. However, following the recent placement of 78m new shares, we expect Ezra’s balance sheet to be significantly strengthened, with gearing to be reduced to 0.2x by end FY09.

Due to the later than expected start up of EOC’s FPSO, we have pushed back contributions by one quarter to the beginning of FY10. This is despite EOC’s guidance for contributions to kick in in 4Q09. However, our numbers are maintained as we factor in improved operating margins for Ezra in 2H09.

We maintain our BUY recommendation on Ezra, with TP adjusted to S$1.59 as we factor in fair value for Ezion [BUY, S$0.76] in Ezra’s SOTP valuation. The group is due to unveil its forward growth strategies in the second half of July, which may be a potential near term catalyst to look out for.

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