Ezra Holdings (Ezra) reported a 25% YoY rise in revenue to US$75.9m but saw a 28% fall in net profit to US$13.3m in 1QFY11, partly due to lower contributions from EOC. However, the group was operationally stable and core operating results were generally within expectations. The first quarter is traditionally the slower quarter of the year, and we expect earnings to pick up in 2H11. Moving forward, the main focus will still be on the integration of Aker Marine Contractors, which recently won a US$30m contract. Ezra also announced fresh charters worth up to US$73m for three of its offshore support vessels. We have lowered our estimates for EOC as we now incorporate lower utilisation rate and higher operating cost assumptions. As such our fair value estimate drops slightly to S$2.20 (prev. S$2.27). However, given an upside potential of about 21.5%, we maintain our BUY rating on the stock.

Operationally stable in 1QFY11. Ezra Holdings (Ezra) reported a 25% YoY rise in revenue to US$75.9m but saw a 28% fall in net profit to US$13.3m in 1QFY11, as its results were impacted by lower contribution from EOC and JV companies as well as higher financial expenses arising from the group’s expansion programme. Stripping these items out, however, the group was operationally stable and its results were generally within expectations. The first quarter is traditionally the slower quarter of the year, and we expect earnings to pick up in 2H11.

EOC turned in low net profit. EOC did not perform well in 1QFY11, posting net profit of only S$566k compared to S$9.9m in 1QFY10. This was partly due to the transition of charter of Lewek Champion, the group’s pipelay and heavy-lift construction vessel, to alternate employment opportunities. The vessel is expected to commence its new contract in 2QFY11. Higher-than-expected operational costs of the FPSO Lewek Arunothai as well as higher interest expense (23% higher than 4QFY10) also impacted net profit.

Recent wins. Aker Marine Contractors (AMC) recently won a mooring installation contract worth about US$30m from MODEC for the hook-up of the Bourgogne FPSO offshore Angola . MODEC will then supply the FPSO to BP for the PSVM development in Block 31. Aker Solutions had previously installed the Jubilee FPSO offshore Ghana for MODEC in Jul 2010, and the fact that MODEC is a repeat customer attests to Aker’s engineering and service capabilities. Meanwhile, Ezra also announced that it has won fresh charters worth up to US$73m for three of its offshore support vessels, including two recently added multi-purpose PSVs.

AMC integration on track. Moving forward, the main focus will still be on the integration of AMC with the group. Though the transaction is likely to be completed around early March, the time needed for actual integration will be much longer. It is imperative that key personnel and employees continue to stay at the combined entity as the success of the group is highly dependent on expertise, which Ezra paid a premium for in its acquisition. Meanwhile, we have lowered our estimates for EOC (in which Ezra owns a 47.3% stake) as we now incorporate lower utilisation rates and higher operating cost assumptions. As such, our fair value estimate drops slightly to S$2.20 (prev. S$2.27). However, given an upside potential of about 21.5%, we maintain our BUY rating on the stock.