Ezra Holdings - Buy by OCBC (1 Sept 2009)

Stable/improving rates. Our discussions with offshore support vessel players are turning to "encouraging" vs. "challenging". Despite negotiations, charter rates seem to be holding up relatively well in most cases. For longterm charters signed in 2005-2006 that have lapsing contracts, we believe that rates could even improve.

Fleet management business. Ezra Holdings Ltd has officially launched its vessel operating agreement (VOA), enabling it to drive future returns and growth without any major capital outlay. Under the VOA, Ezra will manage and operate four new anchor handling, towing & supply (AHTS) vessels for an offshore specialist fund in return for a half-share of the profit earned. The vessels are still under construction, with the first AHTS slated for delivery in the 1QCY10. We think US$3.2m in gross profit could be accreted annually when all four AHTS are up and running.

Arunothai FPSO. We understand that the progress to reach its specified gas output has still not hit the mark. As such, the Floating, Production, Supply and Offloading (FPSO) is still off-hire (thus not charging). We have pushed the accretion back to 1Q10, resulting in a small dip in our bottomline estimates.

Chim sao FPSO update. Premier Oil alluded in its 2Q09 results brief that it has narrowed down its negotiations for a FPSO vessel to two parties. Both parties have secured financing for the project. Upstream Online updated that the two sources are Bluewater and EOC. Bluewater turned front runner as EOC could not secure financing. Now with financing in place, EOC has returned as a contender. We expect the decision to be made within 1-2 months as first oil is expected from the field in mid 2011. With the tight timeline, we think the conversion job of a hull could potentially be done in one of the Singapore yards with their on-time, on-budget reputation.

Maintain BUY. We have bumped up our peg for its core offshore division (includes Marine and Subsea division) to 12x (prev. 10x) FY10F PER while maintaining valuation metrics for EOC (6x FY10F PER) and Ezion (market cap). Our fair value heads up to S$2.00 (prev. S$1.75). The delivery of its 12,000bhp AHTS and DP3 construction vessel (in tandem with contract award) in the next 6 months should provide positive newsflow. Maintain BUY.