Ezra Holdings - UOB Kay Hian 2015-10-26: 4QFY15 ~ On A Stronger Footing

EZRA HOLDINGS LIMITED 5DN.SI

Ezra Holdings (EZRA SP) 4QFY15: On A Stronger Footing

Ezra’s results reflect the current downturn in the O&G industry. Both the subsea and OSS segment posted poor performances while marine services under Triyards fared decently.
The subsea JV with Chiyoda has put Ezra on a stronger footing.
Ezra intends to lower its net gearing further to 0.5-0.6x.
In the works is a sale & leaseback for Lewek Constellation and the divestment of the non-core FPSO business.
Maintain BUY. Target price: S$0.20.

Ezra reported a net loss of US$7.8m for 4QFY15 and S$43.7m (-3% yoy) for FY15. The results reflect the current downturn in the global oil & gas (O&G) industry which has severely impacted the subsea and offshore support services (OSS) businesses, while the marine/shipyard services business under Triyards has been relatively resilient because of its niche position in liftboat building.
OSS and marine services contributed US$37.7m (helped by a large gain from sale and leaseback of vessels) and US$14.7m respectively to group operating profit for FY15 compared with US$31.6m and US$22.4m respectively in FY14.

The subsea segment reported an operating loss of US$15.5m for FY15 vs a profit of US$47.4m for FY14. Subsea orderbook has fallen to a low level of US$0.6b because of a delay in the award of new subsea contracts. Ezra says as a result, its subsea tenderbook has ballooned to US$8b.

On 29 September, Ezra entered into a binding sale and subscription agreement with Chiyoda Corp for a JV with respect to the subsea services business. This deal has put Ezra on a much stronger footing to face the current downturn in the O&G industry. We view this transaction positively as it enables Ezra to meet its upcoming obligations, whilst still maintaining its exposure to the large deepwater subsea industry.
At the same time, the JV provides Ezra a strong partner for its subsea ambitions in the current trying oil & gas sector’s downturn. Chiyoda itself is an experienced oil and gas industry player, with years of experience in Liquefied Natural Gas (LNG) plants. It has designed and constructed plants that account for more than 40% of global production capacity. Chiyoda is backed by the strong financial position of its major shareholder, Mitsubishi Corp. As of FY15, Mitsubishi reported a strong cash and cash equivalent balance of US$15.7b and operating cashflow of US$7.3b p.a..

Ezra is planning a sale and leaseback on its largest vessel Lewek Constellation. We expect this deal to net a cash inflow of US$200m. Separately, Ezra is also looking to divest the non-core FPSO business under EMAS (EOL SP), Ezra targets to reduce its net gearing further from 0.8x currently to 0.5-0.6x.

Our earnings forecasts have yet to be adjusted for the Ezra-Chiyoda deal which will de-consolidate the subsea’s balance sheet including its debts. However, the current low subsea orderbook is a concern.

Maintain BUY and raise target price from S$0.176 to S$0.20 based on 0.5x FY16F P/B.
We have raised our 2016F P/B valuation from 0.3x to 0.5x to reflect Ezra’s declining balance sheet risks. However this is still below our 2016F P/B of 0.7x (premised on Brent oil price at US$60/bbl) accorded to OSV owners.

Nancy Wei UOB Kay Hian | Foo ZhiWei UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-26

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.20 Up 0.176