Tuesday, May 26, 2009

Ezra - Buy by OCBC (25 May 09)

Pre-emptive placement. Ezra Holdings (Ezra) reported on 21 May 09 that it will be placing out up to 78m new shares at S$1.185/share (9.8% discount from 20 May 09 VWAP price); this to raise about S$92.4m in gross proceeds. The 78m new shares represent 13.4% of its existing share capital. While Ezra indicated a wide range of possibilities for the use of the proceeds, we think this placement is pre-emptive in nature to leverage on the improved equity climate for its future growth plans. As long-term financing has been secured for its previous capex plans, we think the cash will go to growing the company through other avenues.

Arunothai updates. We are sticking to our estimates that EOC's Lewek Arunothai will start billing in May 09. During the last quarter's briefing, management updated that it has started production and is in the final stages prior to operation proper. With this asset operational for a 5-year time frame, it will provide good cash flow for EOC to embark on new projects.

Experience gained in FPSO work will prove useful for the Chim Sao project. Chim Sao field update. Upstream Online reported on 20 May 09 that PetroVietnam has exercised rights to 15% of Premier Oil's Block 12W Chim Sao field in Vietnam. The block now has four stake holders: Premier Oil (31.875%), Santos (31.875%), Delek Energy (21.25%) and PetroVietnam (15%). Premier Oil has indicated that plans for an FPSO asset is being finalised although a firm timeline was not mentioned. From previous newsflow, we believe EOC continues to be the front runner to provide and operate the FPSO. We expect EOC to try to manoeuvre its high net gearing of 2.4x (majority LT debt) by gathering equity partners for the FPSO vs. engaging in more debt financing. While this reduces balance sheet burden, it will dilute EOC's attributable profit from the project. Despite this, we think it is a good opportunity for another long-term operating asset.

Maintain BUY. Ezra remains one of our favourites for the sector with its relatively defensive earnings. However, we caution that the economic situation overhang might put a drag on further bouts of aggressive price appreciation. We have adjusted our pegs to cater to better sentiments and early cycle valuations; our SOTP fair value is raised to S$1.46 (prev. S$1.00) and we maintain BUY. Without the placement, our fair value would have been S$1.63.

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