Bank of America-Merrill Lynch downgrades Ezra Holdings (5DN.SG) to Underperform from Buy, due to higher business risk after company Friday announced US$250 million ($323,6 million) investment in money-losing Aker Marine Contractors (AMC), is expected to spend at least US$450 million for two newbuild high specification subsea construction vessels in next three years. 

 

“We are uncomfortable with the high price paid for AMC (5.1X FY10 P/NTA vs Ezra’s 1.6X) and the fast increasing execution and balance sheet risks associated with its relatively new subsea division, which contributed less than 1% of group profits in FY10.” House lowers price objective to $1.24 vs $2.22.

 

Adds, Ezra's FY10 US$69.5 million recurring net profit in line with house view, but 4.5% below consensus; lowers FY11 EPS view to US$0.11 vs US$0.13 due to higher interest cost post-AMC buy. Shares off 2.2% at $1.78 vs STI +0.7%.