(BUY, S$1.485, TP S$1.80)
3QFY11 results below expectation; cut earnings and TP. 9M11 net profit of US$27.9m (-49% YoY) was 42% of our FY11F and 40% of consensus estimates. 3QFY11 net profit fell 75% YoY due to losses at EMAS-AMC, expansion in interest expense and higher admin cost. We downgrade our earnings estimates for FY11-12F by 37% and 23% respectively: (1) higher losses for its subsea unit in FY11F from US$10m to US$15m; (2) increased admin cost: 3QFY11 up 42% YoY; (3) weaker margins for offshore support unit as renewal of new charters will come in lower vs. previous contracted rates. Following the earnings revision, we lower our TP from S$2.40 to S$1.80 based on unchanged 15x fully diluted FY12F EPS (assume conversion of the convertible bonds). Maintain BUY. Upside catalysts are: (1) subsea order wins; (2) rationalisation of non-core divisions; (3) successful integration of AMC into the Group and turnaround in earnings in FY12.
US$85m new subsea jobs; orderbook target on track. Ezra secured US$85m contracts for subsea work in Indonesia, Papua New Guinea, Russia and Western Australia. We estimate that this boosted their subsea order book to US$361m. Given the high number of subsea tenders in the market and limited number of competitors, we believe Ezra will win its share of subsea jobs. Current win-rate implies that the company is on track to meet its target of US$1b by Mar 2012.
Orders will drive subsea turnaround in FY12. We understand that EMAS-AMC contributed close to US$10m losses in 3QFY11 due to low vessel utilisation: vessel utilisation was around 50% and restructuring of vessel hire remains a work in progress. We expect subsea unit to be the main driver of earnings growth as order book is building up and fleet utilisation should head above 70%.
EOCL seeking another primary listing in Asia. Its 47% Oslo-listed associate, EOC, is exploring a second primary listing in Asia by offering new shares. The second FPSO, Lewek Emas, is expected to contribute from mid-Aug 2011.
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