Ezra - DBS Research 2016-12-01: Kitchen-sinking quarter erodes equity

Ezra - DBS Vickers 2016-12-01: Kitchen-sinking quarter erodes equity EZRA HOLDINGS LIMITED 5DN.SI

Ezra - Kitchen-sinking quarter erodes equity

  • One-off items totalling c.US$350m drag down headline profits in 4Q16; net gearing jumps to 3.0x.
  • EMAS Offshore losses widen; Triyards margins under pressure.
  • Covenant waivers provide some breathing space.



Continue avoiding the stock. 

  • We maintain our FULLY VALUED call as we believe balance sheet risks remain high for the stock and with no still no operational turnaround in sight. 
  • The OSV segment (EMAS Offshore) continues to make deeper gross losses, highlighting the persistent weakness in the OSV market.
  • The fabrication segment (Triyards) remains the sole profit centre but is increasingly showing cracks in its armour – lower margins due to a higher proportion of non-O&G projects and slowing order win momentum. 
  • Despite some temporary breathing space obtained from the successful consent solicitation exercise (CSE) relating to its S$150m 2018 note, which granted Ezra waivers of covenant breaches and certain negative pledges related to refinancing/rescheduling of bank debt, we think the US$43m put option exercisable by Perisai (see next page) and the maturity of the aforementioned S$150m note in April 2018 remain key risks amidst continued stress expected on cash flows.


One-off items depress 4Q16 profits. 

  • Ezra posted a kitchen-sinking quarter with c.US$350m in one-off items (see pg.2 for more details) resulting in core losses of about US$69m by our estimates – below expectations. Headline PATMI losses came in at US$339m, which has eroded the equity base, causing net gearing to jump from 1.38x in 3Q16 to 3.00x currently.


Losses to persist as industry remains moribund. 

  • We are forecasting US$148m/US$140m of losses in FY17/18 primarily stemming from losses at EMAS Offshore and the associate/JV level (subsea division), weighed down further by interest costs.


Valuation

  • Challenging fundamentals and a lack of positive sentiment should provide downward pressure on the stock. 
  • We maintain our FV call with a revised SOTP-based TP of S$0.036, and accounting for lower book values post impairments.


Key Risks to Our View

  • The Perisai put option lapsing and Ezra’s bankers backing a repayment of the S$150m note could relieve some negative sentiment related to balance sheet risks. 
  • Alternatively, if oil prices jump sharply to US$60/bbl level and beyond, we could see its share price moving upwards in tandem.




Suvro SARKAR DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-12-01
DBS Vickers SGX Stock Analyst Report FULLY VALUED Maintain FULLY VALUED 0.04 Down 0.060






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