Updates at EOC: FPSO Lewek Arunothai is under commissioning and is expected to make significant contribution by 4Q09 (next quarter). On the other hand, we have also highlighted in our Alert dated 17 April 2009 that its other FPSO project might not materialize. According to an Upstream article on 11 June 2009, the deal with Premier had indeed fallen through as EOC was unable to secure the US$400MM funding for the conversion of the FPSO.
Cash flow and gearing: Ezra’s operating cash flow remains negative at –US$42MM due to the change in sales mix. Collection at the Marine Services division is based on milestones and collection period of the Energy division tends to be longer than the other divisions. Gearing is about 43%. However, this excludes the S$92.4MM (~US$63MM) raised from the recent 78MM shares placement. Factoring that in, gearing will decrease to a more comfortable 29%, based on our estimates.
Maintain Neutral, raise Jun-2010 PT to S$1: We removed the previously assumed 20% collapse in terminal year free cash flow in our valuation of the offshore chartering business given the resilient dayrates enjoyed by Ezra’s young fleet (average: 3 years). Potential upside risk to earnings could come from better-than-expected charter rates for the 2 multi-function support vessels due to be delivered by 1H 2010, which have yet to be contracted.
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