Excerpts from analysts' reports
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CIMB says: Buy Ezra ahead of recovery Analyst: Lim Siew Khee (left)Ezra’s share price has underperformed the FSSTI by 20% YTD, making it one of the three worst-performing O&M stocks in Singapore. Given the more stringent offshore maintenance programme under the new management and its vessels’ gradual return to work, we think that Ezra’s offshore division’s earnings troughed in 2Q14. Subsea, on the other hand, turned in positive net profit for three consecutive quarters with no major hiccups due to consistent orders secured. We think that Ezra’s share price is at an inflection point and see limited downside. We upgrade Ezra from Reduce to Add, following our 3-16% increase in FY14-16 EPS, on higher margins. We forecast a 67% yoy rise in FY15 core EPS but this is still 10% below consensus. Our revised target price of S$1.48 is based on 1x CY14P/BV (4-year average in 2010-13), instead of 11x CY15 P/E. We think that P/BV is a better reflection of Ezra’s valuation due to its volatile earnings in recent years. The potential catalysts are stronger orders and margins. |
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Offshore margin troughed We believe that Ezra’s offshore division is on track for recovery in 3Q14. Its current utilisation is around 80%, with an average rate of US$1.80-2.00/BHP. We performed a vessel search exercise and estimate that around 4-7 vessels may be undergoing maintenance or in-between jobs. This is lower than 2Q14 when 7-9 vessels were off-hire due to maintenance. Subsea is proving itself Given its consistent order wins over the past 18 months, Ezra’s subsea division has chalked up an order backlog of around US$1.5bn. Most of these projects will be executed in 3Q14-2015. In addition, it has delivered a consistent gross margin of 14% since 4Q13, with steady execution. Positive risk-reward We see an attractive risk-reward trade-off if there are no hiccups in the next 2-3 quarters. Ezra could re-rate up to 1.4x P/BV (1 s.d. above its 4-year average in 2010-13) or S$2.05, implying 120% upside. Conversely, if Ezra incurs a net loss (unlikely, in our view), its share price could drop to c.S$0.82 (-25%), similar to 3Q13 (core net loss of US$53m). |
