Ezra Holdings Ltd - Promise kept (CIMB)

OUTPERFORM Maintained

S$0.90 Target: S$1.55

Mkt.Cap: S$781m/US$650m

Offshore & Marine

New contract from Chevron Thailand

Ezra has bagged a new contract worth about US$300m for its AMC division, bringing its order book to US$600m. The contract could restore investors’ confidence after its recent 3Q11 earnings disappointment. No change to our earnings estimates as we have assumed new orders of US$500m-600m for AMC for 2011, for work to be carried out into 2012-13. However, our target price has been lowered to S$1.55 (from S$1.80), still SOP-based, after lowering our P/E target for its offshore & subsea business to 11x (5-year small-mid-cap industrial average) from 13x (20% above average) to reflect a general de-rating of the O&M sector. Notwithstanding this, we see catalysts from stronger-than-expected quarterly earnings and sizeable subsea contract wins.

The news

Ezra has secured a new contract of US$300m for its AMC division, bringing its order book to US$600m. The project scope includes the installation of wellhead platforms and associated pipelines in the Gulf of Thailand for Chevron. Work will begin early 2012 for three firm years with an option for another two.

Comments

Restoring confidence. The contract could possibly restore investors’ confidence after Ezra disappointed in its recent 3Q11 earnings. Given a strong tendering pipeline and upcoming deliveries of major subsea vessels (Lewek Falcon to be delivered by 4Q11; Aker Connector by early 12), management believes the group is on track to achieve its short-term order target of US$1bn. Lastly, we anticipate a better 4Q11 on the back of stronger project execution and better vessel optimisation.

Valuation and recommendation

Maintain Outperform; albeit with lower target price of S$1.55 (from S$1.80), still based on SOP. W lower our P/E target for its offshore & subsea business to 11x, now based on the 5-year small-mid-cap industrial average to reflect a general de-rating of the O&M sector (previously 13x, 20% above average). Notwithstanding this, we see catalysts from stronger-than-expected quarterly earnings and sizeable subsea contract wins.