Wednesday 26 September 2012

Ezra Holdings

OCBC on 25 Sept 2012

As tendering activity in the subsea market continues to be buoyant and the industry outlook is set to remain positive, we increase our FY13 subsea new order wins estimate for Ezra Holdings to US$900m, increasing our fair value estimate from S$1.35 to S$1.48. At the same time, we are positive on the impending listing of Ezra’s engineering and fabrication arm, Triyards, as this will allow the latter to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. The move may also allow Ezra and Triyards to leverage on each other for business opportunities. Finally, an equity carve-out increases information transparency, improving investors’ understanding of the parent’s firm value. Assuming Triyards trades at 9x FY13F earnings with a share price of S$0.78, we estimate that this would lower our fair value estimate for Ezra from S$1.48 to S$1.40. Shareholders’ approval still has to be sought at an EGM this week. Maintain BUY.

Listing fabrication business via dividend in specie
Ezra Holdings (Ezra) recently announced that Triyards, its engineering and fabrication division, has received conditional eligibility to list on the Main Board of the SGX. The listing will be by way of an introduction whereby Ezra is proposing to distribute Triyards shares by way of dividend in specie to Ezra shareholders. In particular, Ezra proposes to distribute 33% of TRIYARDS’ issued ordinary shares (or up to 107.2m shares) on the basis of one Triyards share for every 10 Ezra shares.

Positive on corporate restructuring
Over the years, Ezra has grown from a pure play offshore vessel charterer to a group which also has FPSO operations, engineering and fabrication capabilities, as well as a subsea business. An equity carve-out increases information transparency, improving investors’ understanding of the parent’s (i.e. Ezra) firm value. Meanwhile, Triyards would also be able to tap the debt and equity capital markets independently from Ezra to pursue future growth opportunities. As Triyards expands into new markets, Ezra’s offshore support division may also be able to use Triyards as a platform to expand its operations in these new markets.

Fluctuation in Triyards’s price does not have a great impact on Ezra
Assuming Triyards trades at 9x FY13F earnings with a share price of S$0.78, we estimate that this would lower our fair value estimate for Ezra from S$1.48 to S$1.40. A fluctuation in Triyards’s share price would not impact Ezra’s share significantly; a 1x change in Triyards’s PER would only impact Ezra’s share price by about S$0.01. 

Subsea market outlook positive; increase new order wins to US$900m
Meanwhile we estimate Ezra’s subsea net order book currently stands at around US$1.05b, and tendering activity remains buoyant. Given the positive outlook of the industry, we increase our FY13 new order wins estimate to US$900m, raising our fair value estimate from S$1.35 to S$1.48. Maintain BUY.

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