Sunday, August 30, 2015
EZRA: Deal with Chiyoda unlocks value for shareholders
DBS Vickers analyst: Suvro SARKAR
Shot in the arm for subsea division. Ezra announced a landmark transaction for its subsea unit EMAS AMC, as it proposes to rope in Japanese engineering player Chiyoda Corporation as a partner in the business.
Chiyoda will invest up to US$180m for a 50% stake Ezra’s subsea business to form a JV company – EMAS Chiyoda Subsea. Including third-party debt and shareholder loans, this transaction values the subsea division at around US$1.25bn. Ezra will capitalise part of the existing intercompany debt to EMAS AMC to enhance the capital structure of the proposed JV.
Reputable partner can create synergies.Chiyoda Corp, headquartered and listed in Japan with close to US$1.8bn market cap, has executed numerous EPC projects worldwide, with core competency in design and construction of LNG plants. Chiyoda’s expertise in Front End Engineering Design (FEED) and EPC activities will come in handy for the early phase planning and costing of offshore projects for the subsea division, which is an area that EMAS AMC has lagged so far. The new JV will also benefit from Chiyoda’s strong project management expertise, global network, R&D capabilities and financial muscle in future.
Unlocks value, upgrade to BUY. No significant gains or losses on restructuring and sale are likely. We are not changing our earnings estimates at this point, pending completion of the deal, which will see the subsea division move to the JV line, and reduce net gearing from 1.0x to 0.8x. The implied US$360m equity valuation for 100% of the subsea business is higher than our estimates, leading us to adjust our valuation for Ezra.
Our SOTP valuation is thus revised up to S$0.30 and given the significant upside from current valuations, we upgrade the stock to BUY.
'via Blog this'
Shot in the arm for subsea division. Ezra announced a landmark transaction for its subsea unit EMAS AMC, as it proposes to rope in Japanese engineering player Chiyoda Corporation as a partner in the business.
Chiyoda will invest up to US$180m for a 50% stake Ezra’s subsea business to form a JV company – EMAS Chiyoda Subsea. Including third-party debt and shareholder loans, this transaction values the subsea division at around US$1.25bn. Ezra will capitalise part of the existing intercompany debt to EMAS AMC to enhance the capital structure of the proposed JV.
Reputable partner can create synergies.Chiyoda Corp, headquartered and listed in Japan with close to US$1.8bn market cap, has executed numerous EPC projects worldwide, with core competency in design and construction of LNG plants. Chiyoda’s expertise in Front End Engineering Design (FEED) and EPC activities will come in handy for the early phase planning and costing of offshore projects for the subsea division, which is an area that EMAS AMC has lagged so far. The new JV will also benefit from Chiyoda’s strong project management expertise, global network, R&D capabilities and financial muscle in future.
Unlocks value, upgrade to BUY. No significant gains or losses on restructuring and sale are likely. We are not changing our earnings estimates at this point, pending completion of the deal, which will see the subsea division move to the JV line, and reduce net gearing from 1.0x to 0.8x. The implied US$360m equity valuation for 100% of the subsea business is higher than our estimates, leading us to adjust our valuation for Ezra.
Our SOTP valuation is thus revised up to S$0.30 and given the significant upside from current valuations, we upgrade the stock to BUY.
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Saturday, August 29, 2015
Friday, August 28, 2015
While Many Panicked, Japanese Day Trader Made $34 Million - Bloomberg Business
While Many Panicked, Japanese Day Trader Made $34 Million - Bloomberg Business: "“Buy stocks that are being bought, and sell stocks that are being sold.”"
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EZRA: Cash inflow is 78% of current market cap
RHB Research analyst: Lee Yue Jer, CFA
» Crystallising value with sale at effectively book value. Ezra will book a small USD2m gain on the sale, which stands in stark contrast with the group’s current market valuation, which is at c.0.2x P/BV. Note that our adjusted sale-EV is USD890m (USD360m equity plus USD530m of third party debt. We stripped out the USD360m intra-company loan which Ezra includes as part of the deal value.)
» De-risking operations and deleveraging the company. This sale has double benefits in operational and financial terms. Ezra’s operational risks are now shared with Chiyoda Corp (6366 JP, NR) in equal parts. Financially, Chiyoda now shares half the working capital requirements of the USD2bn of subsea projects in Ezra’s orderbook, and the USD180m cash inflow will help reduce the group’s net gearing to c.80%. We also expect its EBITDA-interest coverage ratio to improve next year.
» Cash inflow is 78% of current market cap. This cash inflow is worth a full 78% of its market cap, and Ezra still owns the other 50% of AMC. It also owns 75% of EOL (EMAS SP, NR) and 61% of Triyards (ETL SP, BUY, TP: SGD0.84). The current market price values both subsidiaries below zero (see Figure 2).
» Still maintaining conservatism in valuation. This successful sale vindicates our belief that the market has been overly pessimistic on Ezra, sending it to deep-value territory. We raise our TP to SGD0.36, incorporating a 20% discount to the sale-EV of AMC, c.0.6x P/BV for EOL and 1x P/BV for Triyards. Without the 20% discount, our TP would be SGD0.45 (see Figure 3).
We also see long-term upgrade potential in Ezra from operational outperformance at Triyards, which could lead to a re-rating above our highly-conservative 1x P/BV. Key risks continue to be its subsea project execution and vessel utilisation rates.
'via Blog this'
| Ezra has sold 50% of its subsea business (AMC) to Chiyoda Corp at an adjusted enterprise value (EV) of USD890m. It will receive USD180m in cash for the 50% stake in the equity of AMC, equivalent to 78% of its current market cap. Maintain TRADING BUY with a higher SGD0.36 TP (from SGD0.25, +216% upside), still imputing a 20% discount to the sale-EV for conservatism. The stock price currently values Ezra’s other listed subsidiaries below zero. |
» Crystallising value with sale at effectively book value. Ezra will book a small USD2m gain on the sale, which stands in stark contrast with the group’s current market valuation, which is at c.0.2x P/BV. Note that our adjusted sale-EV is USD890m (USD360m equity plus USD530m of third party debt. We stripped out the USD360m intra-company loan which Ezra includes as part of the deal value.)
» De-risking operations and deleveraging the company. This sale has double benefits in operational and financial terms. Ezra’s operational risks are now shared with Chiyoda Corp (6366 JP, NR) in equal parts. Financially, Chiyoda now shares half the working capital requirements of the USD2bn of subsea projects in Ezra’s orderbook, and the USD180m cash inflow will help reduce the group’s net gearing to c.80%. We also expect its EBITDA-interest coverage ratio to improve next year.
» Cash inflow is 78% of current market cap. This cash inflow is worth a full 78% of its market cap, and Ezra still owns the other 50% of AMC. It also owns 75% of EOL (EMAS SP, NR) and 61% of Triyards (ETL SP, BUY, TP: SGD0.84). The current market price values both subsidiaries below zero (see Figure 2).
» Still maintaining conservatism in valuation. This successful sale vindicates our belief that the market has been overly pessimistic on Ezra, sending it to deep-value territory. We raise our TP to SGD0.36, incorporating a 20% discount to the sale-EV of AMC, c.0.6x P/BV for EOL and 1x P/BV for Triyards. Without the 20% discount, our TP would be SGD0.45 (see Figure 3).
We also see long-term upgrade potential in Ezra from operational outperformance at Triyards, which could lead to a re-rating above our highly-conservative 1x P/BV. Key risks continue to be its subsea project execution and vessel utilisation rates.
Thursday, August 27, 2015
Wednesday, August 26, 2015
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