Ezra 1 (May 08 - Dec 09)

[winston]

From DMG:-

Ezra Holdings: Capex updates (NEUTRAL\S$0.515\Target S$0.45)
Serene Lim (62323897, [email protected])

Capex to cut by half: Ezra Holdings (Ezra) initially planned for a capex of US$750m, of which US$650m would be used to construct five ultra-deepwater Multi-Functional Support Vessels (MFSVs) and one AHTS. Another US$100m would be set aside for the Vietnam Yard, Academy and Energy Services business division. We now expect capex to be cut by half to US$325m for FY09-10 as we note that three MFSVs would not be built. In light of the current credit environment, the capex for the Vietnam yard is also likely to be trimmed.

Would not be built - MFSV #1 at Keppel Singmarine: We understand that Ezra is finalising the termination terms with Keppel Singmarine. We think that Ezra may not be able to recover the deposit, estimated at US$2.5m.

Would not be built - MFSV #2 and #3 at Karmsund Maritime yard, Norway: In late Dec 08, Tradewinds reported that Karmsund Maritime yard in Norway was facing financing difficulties and execution problems that could lead to serious delivery delays. Recently, our channel checks confirmed that the work on the MFSVs at the yard had been halted, though we were unable to verify the reason. We think that it is unlikely that the halt was initiated by Ezra, given the financial condition of Karmsund, unless Ezra was prepared to forfeit the deposit paid (approximately US$33m).

We cannot rule out the possibility that the yard could be facing bankruptcy. The silver lining is we understand that the yard has provided a refund guarantee, though we are unable to ascertain the recourse at this premature juncture. Nonetheless, we believe that the decision of not proceeding with these MFSVs would ease Ezra’s chartering pressures and provide relief on its balance sheet.

Proceeding ahead – MFSV # 4 and #5 at Dubai Drydocks World: Today’s oil price has resulted in a slowdown in deepwater drilling activities and created a deflationary cost environment. Going forward, we believe it will be increasingly difficult to secure chartering contracts for the remaining two MFSVs (currently under construction at Dubai Drydocks World). Even so, we think these MFSVs are likely to be deployed for shallow water drilling, thus underutilizing the high capacity vessels.

Revised FY10 recurring net profit by 6%. We have made no changes to our FY09 earnings, but reduced our FY10 recurring net profit by 6% to take into account the deployment of the two remaining MFSVs at lower charter rates. We did not factor in the income from the other three MFSVs previously. Given Ezra’s exposure to contingent liabilities arising from sale-and-leasback financing and a fleet comprising of high capacity vessels, we opine Ezra’s greatest risk is a reduction in chartering rates. Our target price is cut to S$0.45 (from S$0.67 previously), based on revisions made to our sum-of-the-parts valuation: 1. Reducing valuation parameter from 5x to 3x (in line with peers) for FY10 earnings. 2. Updated market values for EOC and Ezion. Maintain Neutral.

[millionairemind]

Singapore pair finalise Titan 1 claim
By Upstream staff
http://www.upstreamonline.com/live/article173627.ece
Singaporean companies KS Energy Services and Ezra Holdings will receive compensation for the loss of the jointly owned jack-up liftboat KS Titan 1 totaling $57.8 million including interest and costs.

The liftboat was lost at sea after a transport vessel on which it was being carried was hit by heavy weather in the North Atlantic in October last year.

[winston]

EZRA HOLDINGS - Marine services company Ezra Holdings said its wholly-owned subsidiary Lewek Shipping is cancelling shipbuilding contracts for two deep-water multi-functional vessels with Karmsund Maritime Services.

[winston]

From DBS:-

Reduced capex drag
Ezra has announced the cancellation of its two Norway-built MFSVs, marking the second and third MFSVs cancelled to date. Down payment amounting to NOK186m has been paid, which the group is in the process of recovering. Net gearing will be reduced to a more comfortable 0.5x in FY09/10. No change to our earnings forecasts. We lower our TP to S$1.19, pegged to a lower 6x recurring FY09 for EOC. Maintain Buy.

Ezra cancels another two MFSVs. Ezra announced that it will be cancelling the order for two newbuild multi-functional support vessels (MFSVs) placed in September and October 2007 with a Norwegian shipyard, Karmsund Maritime Service AS. This was following the yard informing Ezra that it will be unable to deliver the vessels as contracted. Under the terms of the contracts, the group is entitled to a refund of all deposits
paid to Karmsund, which amounts to NOK186m (c. US$26.4m). We understand that the group is currently in the midst of seeking repayment of this amount from the bank which provided refund guarantees on the contracts.

Reduced drag on balance sheet. We view this news as generally positive for Ezra, as this will significantly reduce the drag its capex program will have on its balance sheet going forward. As noted in our previous report, the exclusion of these two vessels would reduce Ezra's net gearing to 0.51x by end FY09 and FY10, from 0.54x and 0.73x in FY09 and FY10 respectively.

We also believe these cancellations would free up funds which the group could potentially divert to acquiring
other similar assets at distressed prices further down the road, should the opportunity present itself.
Adjusting our fair value to S$1.19.

We have adjusted our TP downwards slightly to S$1.19, still based on 8x recurring FY09 PE for Ezra’s core businesses, but a lowered 6x recurring FY09 PE for EOC Ltd, given its high net gearing of 2.3x as of end 1Q09, and a lower market valuation for the group’s investment in Ezion Holdings. Maintain Buy.

[winston]

From DBS:-

Ezra announced that it has received the full refund guarantee amounts totalling NOK186m (c. US$27.6m) for the down payment paid on the two cancelled MFSV orders placed with Karmsund Maritime in Sep and Oct 07.

Ezra will have a cash inflow of that amount, expected to be used to cover part of the shortfall between the group's NOK cash balance and its NOK requirements for payment of equipment purchases denominated in that currency.

[winston]

From OCBC:-

Ezra Holdings Ltd: Firm contracts, better EOC business visibility.

BHP guidance. With Ezra Holdings' (Ezra) two Multi Functional Support Vessel (MFSVs) at Karmsund yard cancelled without penalties (OIR originally expected one cancellation), we are refining our revenue estimates. FY09 will have accretion from one Anchor Handling Tug Supply (AHTS) vessel while FY10 will have accretions from two MFSVs. We maintain our initial stance that the MFSV at Keppel Singmarine will also be cancelled.

In total, Ezra will add 72,000BHP (prev OIR est. 99,000BHP) over the next two years. Netting the effect of better charter rates from its MFSVs and the loss of accretion of one more MFSVs from our previous estimates, our FY10F recurring revenue estimates fall by ~7%.

Hard to replace a "Rolls-Royce". Ezra would be one of the first companies to obtain its MFSVs in 2010, creating a new class of support vessel for the industry. Ezra's on-site managers have indicated that the building progress is on-schedule. We understand that Ezra could sign contracts now but are wisely choosing not to in view of the long lead time to vessel delivery in 2010. Even with a 1-2 month delivery delay, Ezra will have to incur high costs to replace such technically advanced vessels on spot rates. Swiber was an apt example when it incurred heightened costs due to vessel delivery delays in 4Q08.

Charter rates holding firm. From its last contract that Ezra renegotiated, we believe that charter rates are still holding firm for deep water capable vessels (Ezra's fleet is 77% deep water capable). With only 10-15% of charters up for renewal annually, we are encouraged by charter rates still holding relatively steady. We do note that offshore charter rates can lag in changes (up or down) as vessels have long term contracts in place. With oil prices finding a floor, we think that FY10 rates can still be renewed at current levels or maybe better.

EOC updates. EOC's FPSO in Thailand has still yet to commence gas extraction and we are expecting it to become accretive in May 09 (5 months delay). Once online, the US$228k/day rate it charges would help boost EOC's earnings.

Steady business. The lower income from its core chartering business is buffered by better visibility of EOC's business. Our fair value is tweaked to S$1.01 (prev: S$1.09) based on SOTP valuation. Maintain BUY.(Kelly Chia)

[Musicwhiz]

Revenue will be lower but Balance Sheet will be stronger. I'd rather choose that over profit growth at the expense of high leverage, especially during credit crunches. Still, many risks remain for Ezra.

[winston]

Not vested. From DBS:-

DBS Research has a positive view on the Oil & Gas sector. Huge capex cutbacks by major oil companies is unlikely; while the plunge in charter rates for transportation shipping would not be repeated here. We also believe that the worst of oil demand destruction may be over, as oil prices find support from a possible 1.2%-2.2% supply deficit as a percentage of estimated demand for 2009.

Our top buy in this sector is Ezra (TP: $1.19). Ezra has met all our four quality evaluation criteria, which include
1) Stronger balance sheet,
2) Better revenue visibility,
3) Cheap share price valuation, and
4) Unique business proposition.

It also has bigger exposure to production phase of offshore oil fields and offers huge price upside potential to our TP of $1.19

[winston]

Trading Halt

[eauyong]

Apr 03/09 Legg Mason, Inc. Open Market Purchase 6,914,000 $0.760 SGD 5.36 % (Holding after event %)