Ezra's net profit crashed 68% to US$7.2m

Its subsea division was a huge disappointment.

Acording to OCBC Investment Research, Ezra Holdings reported a 19% YoY rise in revenue to US$317.1m but saw a 68% drop in net profit to US$7.2m in 3QFY13, such that 9MFY13 revenue and net profit accounted for close to 75% of our full year estimates, respectively.

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However, if we were to strip out one-off items such as the disposal of Ezion shares which contributed to a US$67.4m gain, we estimate core net loss of US$54m for the quarter. Gross profit margin was only 1% vs. 17% in 3QFY12.

Subsea disappoints; goes into the red again. The offshore support services division saw a slight decrease of US$0.7m in 3QFY13 revenue vs. a year ago with the off-hire of vessels that underwent repair and maintenance, while gross profit margin was also lower than 20% in the quarter.

The marine division saw in-line earnings, but it was the subsea division that disappointed the market.

The segment, which finally turned in net profit starting from 2HFY12, went into the red again with delays in project executions and additional costs that were previously unexpected by management.

As highlighted in our earlier reports, we have been waiting for evidence of smooth execution before we turn more positive on the company.

Subsea order backlog ~US$1.5b. Despite this, the group has won new contracts worth more than US$450m since its last quarterly results, bringing its total order book to more than US$2b.

We estimate the subsea order backlog to be around US$1.5b, and Ezra expects to execute about US$1b worth of subsea projects in FY14, assuming no unexpected delays.

Turning to P/B valuation
Though management mentioned that 4QFY13 would see a turnaround in the subsea division, we would prefer to see more sustained core earnings before using a P/E valuation.

As such, we value the company using a P/B of 0.7x, close to its historical average ever since AMC’s integration into the group’s operations. As such, our fair value estimate drops from S$1.10 to S$0.99.

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