3QFY09 results within expectations. Ezra Holdings (Ezra) 3QFY09’s topline increased by 9% YoY but fell 6% QoQ to US$60m. Adding back the one-off exchange loss from the termination of MFSV contracts, core operating profit was US$17m, an improvement of 14% YoY and 4% QoQ. Ezra’s 3QFY09 results came well within expectations, though we raise slight concerns over Ezra’s high collection period for the second consecutive quarter. Going forward, we expect flattish 4QFY09 revenue and operating profit. Hence, no change has been made to our earnings estimates. Our BUY rating remains, as we await Ezra’s new growth strategy, to be released soon.

High receivable days a concern, leading to negative operating cashflow in 3QFY09. Ezra’s collection period continued to exceed 240 days (annualised basis) into 3QFY09 as compared to 185 days in 3QFY08. Management said this was largely due to the longer payment period extended to STP Energy for Ezra’s maiden Energy division’s project (completed in 1QFY09). We raise concerns if this would result in the provision of bad debts, though management assured otherwise. In addition, management noted that it would be enforcing stricter credit terms (eg. request for upfront payment and letter of credits) as Ezra takes on new projects for its Energy division, going forward.

Ezra to reveal new growth strategy that looks to benefit from E&P up-cycle. We understand that Ezra will be revealing its new growth strategy next week. We think management is likely to share forward plans of the Energy division, ie. providing construction and maintenance services to existing oil producing wells. If so, this diversification may allow Ezra to enjoy higher value-added returns and shift away investors’ emphasis on AHTS oversupply and risks of declining chartering rates.

Meanwhile, Ezra’s fleet of chartering vessels will provide a stable recurring income stream, as our industry channel checks reveal that Ezra is bidding for several chartering contracts, including tapping on associate company, Ezion Holdings’ recent A$350m win of the A$2.7b Gorgon gas field development project.