Ezra 1 (May 08 - Dec 09)

[millionairemind]

Results out.

http://info.sgx.com/webcorannc.nsf/37e9 ... enDocument

[Musicwhiz]

My brief comments:-

Note that Ezra's recurring net profit is US$49.9 million, EPS is about S$0.15 based on 1 USD = 1.47 SGD. With current pre-halted market price of S$0.60, this represents a PER (historical) of 4x. Not exactly expensive if you ask me, but then I can't be objective cos I am vested right ?

Interest cover has increased to 29x and net gearing has been reduced to 11.5%. I am happy no dividend was declared, as they have committed capex of US$750 million for the next 3 years. The funding has already been acquired for their asset acquisitions and they should be relying on a lot of internal cash flows to sustain their operations. These should be healthy considering charters are for mid to long-term.

One concern though, is the falling gross margins for chartering. Fabrication is expected to have lower margins so that's not surprising, and Energy Services contributed to maiden net profits with a net margin of close to 10%.

Overall, the P&L does NOT look good but the Balance Sheet looks healthy. This makes me much happier than seeing a sparkling P&L but poor Balance Sheet. The Cash Flow Statement also looks healthy with +ve net operating cash flows. Moving forward, the company will need to navigate carefully and conserve cash to build its fleet and secure more contracts with its deepwater vessel fleet.

Will do a more detailed review when I have the time. Been very busy lately.

[winston]

RESEARCH ALERT-Citi cuts Ezra Holdings price target

SINGAPORE, Oct 22 (Reuters) - Citi has cut its price target for Singapore's oil services firm Ezra Holdings to S$0.55 from S$0.80 and kept its "sell" investment rating after the firm posted weaker-than-expected fourth quarter earnings.

The stock last traded at S$0.60 on Tuesday, representing a 8.3 percent premium to Citi's revised price target of S$0.55.

"Recent poor results, possible estimate cuts by the street, poor guidance and disclosures, dependence on debt, and less robust industry fundamentals combine for a poor investment thesis," Rigan Wong said in a research note.

[winston]

From DBS:-

Ezra’s FY08 earnings were in line with our expectations, with net earnings before exceptionals rising 134% to US$50m,
benefiting from higher charter rates and an expanded fleet.

We were however disappointed that margins declined faster than expected (down 5.6ppt to 10.3%).

Maintain Buy, TP adjusted to S$1.25.

[winston]

From Lim & Tan:-

EZRA

- MD Lionel Lee may have tried to “steer” investors focus on to Ezra’s results for the full fiscal year ended Aug ’08: profit more than doubled to US$175.4 mln.

- But he can’t “hide” the 84% drop in profit in the final quarter, to US$6.72 mln from US$43.3 mln a year ago, largely due to the US$45.4 mln swing in Other Operating Income to a deficit of US$9.86 mln, due to the US$5 mln forex loss, US$4.6 mln allowance for bad debt etc.

- Note also no final dividend has been declared, after the 5 cents special interim costing US$21.3 mln.

- More questions have in turn surfaced in recent times, especially concerning a private company called STP Energy, which charters the Ensco 56 (a jack-up rig) from Ensco through Ezra, to prospect for oil, such as, who’s behind STP, and
why not lease the vessel direct from Ensco rather than through Ezra?

- While Balance Sheet appears healthy (US$153.1 mln cash vs US$195.3 mln borrowings on Shareholders Funds of US$370.1 mln, we remain concerned with the US$750 mln capex program, even though funding has been “secured”.

[winston]

Vested. From CIMB:-

Ezra Hldgs (S$0.60)- 4Q08 results-Day rates remain strong, financing secured Ezra's 4Q08 net profit (US$7m) was below our expectations (US$25m) but above consensus (US$2m). The variance was due to US$16m of provisions arising from
forex movements and doubtful debts in the quarter. Stripping these out, Ezra's 4Q08 net profit would have been US$23m, within our forecast. About US$400m of its US$650m capex for five units of MFSVs has been locked in with local banks.

The remaining capex will be supported by operating cash flows. Our earnings estimates have been cut by 22-29% for FY09-10 on lower margins for offshore support, lower order assumptions for its Vietnam yards and further permissible delays of its MFSV vessels. Maintain Outperform, although our target price has been cut to S$1.05 from S$3.08, still based on sum-of-the-parts valuation.

Catalysts could include contract wins for the first unit of MFSV.

[winston]

From OCBC:-

Good performance. Ezra Holdings (Ezra) reported a good set of FY08 results with revenue growing 87% to US$268.3m while PATMI grew 155% to US$175.4m. Removing its divestments, Ezra continued performed well with its recurrent PATMI rising 55.5% to US$49.9m from its core support vessel chartering business and Vietnam yard. The final quarter also saw contributions from its newly minted Energy Services division that manages rig drilling programs on a cost-plus approach - revenue was a lump sum payment and will not have similar magnitudes in the future unless it hits oil.

Less lumpiness going forward. Prior to its FY08 results, Ezra announced that it had obtained new charter contracts ranging from 1-7 years for four AHTS vessels. Although no hard numbers were given, management indicated that rates continued to be strong as Ezra obtained 15% hikes in these contracts' charters. With its divestments completed, we expect Ezra to show less lumpiness in its earnings while growing its support vessel business as it take deliveries of newer vessels in the years ahead.

Market disruption clause. We have been updated that its loans contain a market disruption clause that could potentially lead to a 200-bp rise in interest costs if the liquidity freeze in the macro credit situation continues. As we know it, the clause has yet to be invoked.

Risks. While Ezra's new Multi Functional Support Vessel (MFSV) will garner strong charter rates when contracted out, we are mindful that yards could delay on its promises of delivery due to shrunken access to credit for working capital and further delays of critical long lead time equipment like engines and generators. Ezra has contracted its first MFSV and could
face the possibility of delayed delivery thus needing to deploy multiple vessels to fulfill its obligations.

Maintain BUY. We have introduced our US$ estimates with the change in functional currency. Our forecasts have worked better charter rates into its Offshore division but have lower YoY expectations of its Marine and new Energy Services division in view of its largely project based earnings in a slowing economy. We anticipate its recurring EPS to grow in the high
teens for FY09 and 28% for FY10 in view of having more vessels for charter.

Although our SOTP valuations have come off in tandem with the market (See Exhibit 1), we like Ezra's locked in long term charters and young fleet that addresses the deep sea segment. Maintain BUY with fair value of S$1.20 (prev. S$3.30).

[winston]

The management of Ezra Holdings Limited (Ezra) would like to respond to the following points in the above‐mentioned report.

• Poor Earnings Guidance
Ezra has always prided itself in open communications with our investors. A quick check with a couple of analysts showed that they are comfortable with the guidance given by management. We have both in‐house and external investor relations contacts who respond as quickly as they can to all investor queries.

Ezra has won several awards in the past for good corporate transparency and investor relations practices and continues to keep an open communications channel with the investing community.

• Charter Hire Rate
As Ezra owns and operates a fleet of offshore support vessels with differing capabilities ranging from 4,200 bhp to 18,000 bhp, management usually guides on a blended daily average rate. Management felt that this would serve as a helpful ‘earnings’ guide as there are no published average charter rates for AHTS and AHT operating outside of the North Sea.
Our latest US$104 million worth of term contracts with charter periods ranging from 1 to 7 years, announced on 20 October 2008, are 10‐15% higher on average, which is in line with the industry norm.

Rates for specific vessels depend on several factors, including nature of job, urgency of the hire, location, duration, size and level of equipment required. It is therefore incorrect for the analyst from Citi Investment Research to compare our blended
average rate with the charter hire rate of a specific vessel in his recent report on Ezra.

• Exceptional Items
Ezra’s management has consistently provided a detailed breakdown of our exceptional items, and the FY08 results announcement was no exception. We have also been upfront on the reasons for these items. It is therefore regrettable that this sort of detailed disclosure should have created even more anxiety only to this analyst.

For FY08, there are only six detailed breakdowns to our exceptional items which, we believe, cannot be described as a ‘long list’ as referred to in the report. We would also like to clarify that the provision for foreseeable losses of US$3.1 million and the loss on the disposal of vessels held for sale of US$2.8 million is not because of a passed on cost inflation at the yards as written in the above‐mentioned report. As we explained earlier, it is largely due to the negative currency impact which resulted in the higher building cost vis a vis the contracted sale price locked‐in two years ago in 2006.

• Higher Funding Cost
The report states that a number of Ezra’s bankers are trying to invoke the “market disruption clause” on its long term CAPEX financing. We would like to clarify that the majority of our bankers have, in fact, not indicated any intention to invoke the
market disruption clause. In addition, we do not expect an across‐the‐board increase of the “less than 200 bps” highlighted in the report.

• Charter Duration
In our latest announcement on new contracts awarded, we said that the charter periods for the 4 vessels ranged from 1‐7 years. The minimum 1‐year period is the industry definition of a period charter and Ezra always has contracts which range
from 1 year to as long as 20 years, depending on vessel type, location and nature of the project.

We believe that our growing recurrent earnings base and our ability to continue to clinch new contracts supports the view that demand from the offshore oil & gas market is still relatively firm.

By Order of the Board
Submitted by David Tan Yew Beng, Company Secretary on 23 October 2008 to SGX.

[winston]

Vested.

Moon Capital Management LP raised their stake from 5.052 % To 6.705 %

Acquisition between 17 October 2008 and 23 October 2008 of an additional 9,686,000 shares amounting to an aggregate interest of 6.705% by Moon Capital Master Fund Ltd. and Moon Capital Leveraged Fund Ltd. which are managed by Moon Capital Management LP

[Musicwhiz]

Vested.

Moon Capital Management LP raised their stake from 5.052 % To 6.705 %

Acquisition between 17 October 2008 and 23 October 2008 of an additional 9,686,000 shares amounting to an aggregate interest of 6.705% by Moon Capital Master Fund Ltd. and Moon Capital Leveraged Fund Ltd. which are managed by Moon Capital Management LP

Wonder what this "Moon Capital" is ? They literally gobbled up all the shares being sold down by panicked shareholders over the last couples of days.