By Low Pei Han
Tue, 13 Jul 2010, 08:48:30 SGT

Ezra Holdings (Ezra) reported a 82% YoY rise in revenue to US$108.8m in 3QFY10, boosted by its marine services division. Net profit increased by 37% YoY to US$25.7m such that the 9MFY10 figure accounted for 73% of our full year estimate. Increase in procurement, equipment supply and engineering activities in Vietnam led to higher contributions from the marine services segment which saw stable gross margin of 23% in 9MFY10. 3QFY10 was a weak quarter for EOC as a few vessels underwent downtime. However, two vessels have since won contracts and another vessel has resumed operations. The group still has ample funds for capital expenditure from its share placement and bond proceeds. Looking ahead, Ezra is cautiously optimistic that the outlook for the oil and gas industry will be positive in the next 12 months, barring unforeseen circumstances. We maintain our BUY rating on the stock with a fair value estimate of S$2.81.

Good 3QFY10 results. Ezra Holdings (Ezra) reported a 82% YoY rise in revenue to US$108.8m in 3QFY10, boosted by its marine services division. Net profit increased by 37% YoY to US$25.7m such that the 9MFY10 figure accounted for 73% of our full year estimate. Stripping out exceptional items such as gain on asset disposal and dilution of interest in an associated company, core net profit is estimated to be about US$15.4m. Increase in procurement, equipment supply and engineering activities in Vietnam led to higher contributions from the marine services segment which saw stable gross margin of 23% in 9MFY10. Though the offshore support services segment reported lower gross margin of 35% in 9MFY10 compared to 40% in 9MFY09, it was in line with our expectations.

Weak quarter for EOC, but new contracts secured. On the other hand, 3QFY10 was a weak quarter for EOC as Lewek Arunothai underwent maintenance for about one and a half months. However, it has since resumed operations and should contribute to the group’s earnings in 4QFY10. Two other vessels (Lewek Chancellor and Lewek Champion) also experienced downtime due to frictional deployment, but have since obtained new charters worth up to US$20m, albeit short-term ones. The first vessel is an accommodation crane barge which will provide mainly accommodation support services to an offshore project in a contract awarded by a JV between a Malaysian oil major and a Thai E&P company. The second vessel will provide structural heavy lift, pipelay and subsea construction services to another Malaysian O&G services provider. Both vessels will be fully utilized in 4QFY10.

Still has ample funds. To date, Ezra has utilized 52% of its share placement proceeds (received Jun 09) and 41% of its convertible bonds proceeds (received Nov 09) mainly for purchase of equipment and funding of new business ventures and opportunities. This leaves about S$124m of proceeds left for similar purposes and for paying down debt.

Maintain BUY. Looking ahead, the group is “cautiously optimistic” that the outlook for the oil and gas industry will be positive in the next 12 months, barring unforeseen circumstances. In particular, demand for medium- and large-size offshore support vessels are expected to remain good. We maintain our BUY rating on the stock with a fair value estimate of S$2.81.