No additional capex required. Ezra will be leveraging its existing assets, mainly two units of Multi-Function Support Vessels (MFSVs), to be delivered in mid-2010/beginning 2011 as well as a heavy lift construction vessel (delivery 2010) to venture into the subsea segment. Existing capex plans are, therefore, unaffected.
What will Ezra do for subsea segment? To be headquartered in Houston, the US, the new subsea division will expand Ezra’s market reach into the Gulf of Mexico, Brazil and Africa. The type of contracts it will be pursuing will include the installation of Subsea, Umbilicals, Risers and Flowlines (SURF), subsea inspection, maintenance and repair as well as well intervention and drilling (Figures 2 & 3). Management indicated that average day rates for subsea work could range from US$150,000/day to US$300,000/day, depending on duration (from 280 days to five years) and scope of work (term charter or lump-sum project). The subsea market is largely dominated by US and European players (Figure 5) and Ezra will be the first Singapore company to offer a full spectrum of subsea services.
Group revenue to grow by 50-60% by 2015. Management has an overall revenue growth target of 50-60% by 2015, with one-third contributions from the offshore support, subsea and marine divisions respectively. Currently, offshore support dominates Ezra’s revenue, at 60%.
Capacity growth from offshore support and EOC. Ezra plans to add four new AHTS to its offshore support fleet of 25 AHTS/AHT vessels, bringing its total capacity to 279,200bhp by 2011. Its construction and production arm, led by associate EOCL, also plans to increase its fleet with two new accommodation crane barges (300 tonnes, 300 men) within the next five months, via sale and leaseback arrangements or JVs with partners. The barges are likely to be deployed in South-East Asia with average day rates of US$22,000/day-US$30,000/day.
Earnings estimates raised by 4-9% for FY10-11. Our earnings upgrade incorporates: 1) higher day rate assumptions for the two MFSVs from US$80,000/day to about US$115,000/day; and 2) an enlarged fleet for the offshore support and production & construction divisions.
Maintain Outperform; target price raised from S$1.39 to S$1.47, still based on sumof-the-parts valuation, following our earnings upgrade. We see sustainable earnings growth and the ability to secure charters for the new MFSVs as key catalysts for the stock.
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