After announcing contract wins worth up to US$225m YTD, Ezra Holdings’ overall order backlog has exceeded a record US$1.6b. Industry expert Douglas Westwood is also forecasting higher subsea capital expenditure in the industry in the next few years, and Ezra is well positioned to benefit from such trends. We think AMC will start making positive contributions this year as 50% of the subsea order book (currently in excess of US$800m) gets recognized mostly in 2H12. The offshore support business should also be supported by recovering charter rates which are expected to pick up more strongly in 2H12. Along with the recent re-rating of the sector, we increase our peg for the offshore marine and energy business from 13x to 15x, bumping our fair value estimate from S$1.36 to S$1.51. Maintain BUY.
Buoyant outlook for subsea market.After announcing contract wins worth up to US$225m YTD (for both subsea and marine divisions), Ezra Holdings’ overall order backlog has exceeded a record US$1.6b. Industry expert Douglas Westwood is also forecasting higher subsea capital expenditure in the industry in the next few years, with Latin America, Africa and Australasia showing high growth levels. More resources would also be needed to manage the installed infrastructure, with capital spending in this respect estimated to grow 10% annually (repair & maintenance to see greater increase than inspection). This would be driven by aging infrastructure, new wells, and tighter safety standards.
In the running for more contracts.According to Upstream, Delcom is bidding with EMAS (Ezra’s operating brand) for Shell’s first vessel-based chemical enhanced oil recovery project at the St Joseph field off Sabah, Malaysia . EMAS is also teaming up with Afcons and Real Offshore to bid for ONGC’s pipeline replacement project 3 (estimated worth about US$500m) in the Mumbai offshore area .
Further upside available despite strong performance YTD.Ezra’s stock price has risen by about 55% YTD, making it the fifth best performing stock listed on the SGX so far this year (Exhibit 1). It is currently trading at about 13x forward P/E, which is also its historical average since 2005 (Exhibit 2). Looking ahead, assuming there are no hiccups in the execution of the subsea business, we think AMC will start making positive contributions this year as 50% of the subsea order book (currently in excess of US$800m) gets recognized mostly in 2H12. The offshore support business should also be supported by recovering charter rates which are expected to pick up more strongly in 2H12. Along with the recent re-rating of the sector, we increase our peg for the offshore marine and energy business from 13x to 15x, bumping our fair value estimate from S$1.36 to S$1.51. Maintain BUY.
In the running for more contracts.According to Upstream, Delcom is bidding with EMAS (Ezra’s operating brand) for Shell’s first vessel-based chemical enhanced oil recovery project at the St Joseph field off Sabah, Malaysia . EMAS is also teaming up with Afcons and Real Offshore to bid for ONGC’s pipeline replacement project 3 (estimated worth about US$500m) in the Mumbai offshore area .
Further upside available despite strong performance YTD.Ezra’s stock price has risen by about 55% YTD, making it the fifth best performing stock listed on the SGX so far this year (Exhibit 1). It is currently trading at about 13x forward P/E, which is also its historical average since 2005 (Exhibit 2). Looking ahead, assuming there are no hiccups in the execution of the subsea business, we think AMC will start making positive contributions this year as 50% of the subsea order book (currently in excess of US$800m) gets recognized mostly in 2H12. The offshore support business should also be supported by recovering charter rates which are expected to pick up more strongly in 2H12. Along with the recent re-rating of the sector, we increase our peg for the offshore marine and energy business from 13x to 15x, bumping our fair value estimate from S$1.36 to S$1.51. Maintain BUY.
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