Jaya Holdings: A better than expected performance

3Q09 results ahead of expectations. Jaya reported 3Q09 net profit of S$22.2m (-43% y-o-y), which included a net forex loss of S$13.4m. Excluding this, recurring net profit would be S$35.6m (+35% y-o-y), above expectations. Group revenue of S$70.1m (-9% y-o-y, +86% q-o-q) improved significantly q-o-q as the shipbuilding division saw a higher rate of revenue recognition on vessels under construction, but was offset slightly by lower contributions from the chartering division which reported a reduced fleet size, but higher day charter rates of S$11,378 (+36% y-o-y). Jaya also posted markedly reduced admin costs of S$0.2m, down 91% y-o-y, which partially buoyed operating margins of 55.8% (+12.6ppt y-o-y). In-linewith its newbuild program, net gearing edged up marginally to 0.66x, from 0.65x as of end 2008.

Adjusting FY09 net profit estimate to S$75.4m, to account for higher thanexpected shipbuilding revenue, improved gross margins and lower operating costs. No change to our FY10 numbers.

Upgrade to HOLD, TP S$0.54. We are raising Jaya's fair value to S$0.54, based on 1.0x FY09F P/BV (prev 0.45x) as we adjust for lower equity risk premium. We are encouraged by Jaya's ability to manage its operating costs well, and its ability to dispose vessels despite the persistent challenging macro conditions. In 9MFY09, the group has received disposal proceeds of c. S$142m which will help towards reducing balance sheet strain. Forex and translation losses should also start to taper off as we understand that the majority of the hedges contracted previously have matured. Hence, we upgrade Jaya to HOLD from Fully Valued.

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Ezra Holdings Luncheon Presentation

Going forward, Ezra is looking to grow the company by relying partially on services instead solely on CAPEX. Currently, Ezra has a CAPEX commitment is US$350m.

Net gearing is expected to be less than 1.0x. Ezra has about 15-20 main customers. Shell contributes 30-40% of total revenue. Weighted average charter contract tenor is about 3-3.5 years.

Recently cancelled two MFSVs with KMS and looking to cancell one MFSV contract with Keppel. The contract has not begun construction work. Ezra has paid S$3.4m deposit and contract is still under negetiation.

Ezra has loan-to-value covenants of 70-80%. The management guided that they are not in breach of any loan covenants. Before the crisis, cost of borrowing was LIBOR + 80-125 bps. For the newer contracts, current cost of borrowing has gone up to LIBOR +220 bps.

Average time charter rate for an AHTS is about US$1.95-2 per bhp (FY08: US$1.80-1.85 per bhp). Rates are softening for smaller AHTS vessels in shallow water but not so much for those operate in the deepwater.

Based on consensus forecasts, Ezra is trading at 6.4x 2010 P/E (8.1x 2009 PE) and 1.1x 2010 P/B (1.2x 2009 P/B). As of 28 Feb 09, Ezra has a net gearing of 47%.

ASL Marine Holdings: Good results, but weaker operationally

ASL reported a strong set of results, with 3Q09 headline net profit of S$23.4m (+65% y-o-y, +44% q-o-q) coming in above our expectations, on revenue of S$106.9m (+27% y-o-y, -1% q-o-q). This was mainly due to a larger than expected gain from the divestment of its stake in ASL Energy earlier this year, and an additional S$0.4m vessel disposal gain. However, operating profit of S$11.9m was weaker than expected, mainly due to: 1) weaker gross margins (-11.5ppt y-o-y) on the ship repair business from lower volume of jobs undertaken in the period; and 2) a relatively large S$2.3m provision made for doubtful debts. Stripping out exceptionals, we estimate recurring income to be c. S$11m, down 15% y-o-y. Balance sheet remains strong with net gearing of 0.17x, expected to dip to 0.14x by end FY09.

We adjust our FY09 earnings estimate upwards slightly by 1% to S$72.9m to factor in the larger than expected disposal gains, but maintain our FY10/11 numbers. Going forward, we expect decline in shipbuilding contributions to be somewhat mitigated by greater contributions from the higher margin ship repair division, which is expected to ramp up on the back of an enlarged capacity, scheduled to come on stream over 2H2009.

Downgrade to HOLD, with TP maintained at S$0.94. While we still like ASL for its diversified revenue stream and strong balance sheet, the counter has run up 29% since we raised its fair value last week, leaving an upside of c. 6%. Hence, we downgrade ASL to HOLD (prev Buy).