Prudent cash management. Ezra Holdings (Ezra) has announced thatit will be reconsidering the purchase of one Multi Functional Support Vessel(MFSV) worth S$69m at Keppel's Singmarine shipyard. This is one of thesix vessels that Ezra has on its newbuild program that it was to add in thenext two years to capture the deepwater offshore vessel support business.With delays and cancellations of deep sea rigs to be deployed in areaslike Brazil, West Africa and the North Sea, Ezra is likely to re-look itsinvestments to efficiently utilize its cash flow.

Assuming cancellations. While we understand that discussions are stillongoing, we are assuming that Ezra will not only be canceling this MFSVbut another one for delivery later in FY10. This will let Ezra pace out itsexpansion plans and watch the developments in the oil industry prior tofurther monetary commitment. In all, Ezra will still be taking deliveries ofthree MFSV and one AHTS in the next two FYs to grow its charteringbusiness.

Impact on financials. With our assumption of two MFSV cancellations,we see gearing at a more comfortable level for FY09 at 0.2x (prev: 0.3x)and 0.7x for FY10 (prev: 0.9x). We are still in the midst of clarifying thefurther reduction in capex as Ezra would also not need to purchase someexpensive long lead time equipment like engines and generators. This canreduce Ezra's gearing further. We are retaining our interest costsassumptions in view of the difficult credit environment but would revisitthem when interest costs are proven to moderate down in the subsequentquarters. There will be no impact on FY09 earnings but our model indicatesa small drop of about 5% from the topline and 3.5% from the bottomline inview of the loss of one vessel's half year contribution for FY10.

Wise management decision, Maintain BUY. We continue to like Ezrafor its focus on the deepwater arena. While new capex plans by the OilMajors and NOCs are hazy, there are still a record number of deep waterrigs that will be delivered in 2009. This will incur the need for deep watercapable support vessels. Ezra could also secure vessel builds at betterprices later should steel prices continue their drop. Our SOTP valuationmoderates slightly to S$1.17 (prev: S$1.20). Maintain BUY.