Ezra

Ezra: Industry sources reported that Samsung Heavy Industries (SHI) has failed to obtain its mgt’s approval for an acquisition of Ezra to spearhead SHI’s new thrust into subsea. There are not that many M&A targets in this space. Apart from Ezra, SHI had looked at other subsea companies based in the Netherlands and Switzerland. In contrast, Hyundai Heavy Industries is venturing into the subsea business with its in-house subsea R&D resources, targeting commercial shipments by 2H14. CIMB notes, Ezra’s subsea division had lost money in 3QFY13 with Ezra having to write off costs from project delays due to client rescheduling and cost overruns for some. A lack of project baseload meant the group could not afford any major timeline shifts in project execution due to its high overheads and subcontractor costs. While 4Q13 should be profitable following the completion of some projects , the house is worried about low vessel utilisation during winter (Nov-Jan), which could eat into subsea’s profitability in 1Q14. CIMB is doubtful of Ezra’s traction in subsea, both in winning sizeable orders and profitability, which may be de-rating catalysts for our its existing Underperform rating. TP stays at $0.70, pegged to 10.5x CY14 P/E, -1SD from its 5-year mean.