Ezra Holdings - RHB Invest 2016-01-15: Bankruptcy Fears Overdone

Ezra Holdings - RHB Invest 2016-01-15: Bankruptcy Fears Overdone EZRA HOLDINGS LIMITED 5DN.SI 

Ezra Holdings - Bankruptcy Fears Overdone 

  • Ezra reported a loss for the first time since listing, dragged down by its underperforming vessel charter and subsea businesses that more than offset operational improvements at Triyards. 
  • Maintain TRADING BUY with a lower SGD0.195 TP (from SGD0.33, 157% upside), equivalent to merely 0.364x P/BV. While the stock is now trading at 0.141x P/BV, implying that the market is pricing the stock for bankruptcy, this is not our central case. 

 Challenging operating environment persists. 

  • Ezra Holdings’ (Ezra) 1QFY16 (Aug) loss of USD53.7m was divided into two parts – a USD17m loss from its continuing operations comprising EMAS Offshore Ltd (EMAS) and Triyards (ETL SP, BUY, TP: SGD0.94), and USD36.7m of “discontinued operations” – being categorised as such, given that 50% of the subsea business has been sold. 

 Swinging from profit to loss. 

  • Vessel utilisation at EMAS was weaker than expected, compounded by falling charter rates, this led to negative 2% gross margin vs almost 20% a year ago. The subsea business also recorded higher-than-usual losses as Ezra took in accelerated amortisation on some assets, taking the operational decision to return third-party assets earlier to conserve cash. As a result, our earnings forecasts are lowered to -USD56.2m/-USD10.6m/USD11.4m for FY16- 18 from USD16.5m/USD25.8m/USD26.4m. 
  • Although we continue to see earnings growth at Triyards, the larger divisions of EMAS and the subsea business delivering poorer results would drag the group into a loss this year and likely the next. 

 Even so, bankruptcy fears are probably overdone. 

  • Ezra’s shares, now trading at 0.141x P/BV (the third decimal place has become significant), imply market expectations of the group facing bankruptcy. However, with Ezra having already performed a rights issue and sold half of its subsea business – and is now working with its banks to restructure its borrowings to delay principal repayments – we believe such fears are overdone. 
  • Our revised SOP-based SGD0.195 TP (from SGD0.33) uses a 70% discount (from 40%) on the sale value of the subsea business, and implies a mere 0.364x P/BV from the shareholders’ equity value per share of SGD0.537. 

Lee Yue Jer CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-01-15
RHB Invest SGX Stock Analyst Report TRADING BUY Maintain TRADING BUY 0.195 Down 0.33