EZRA HOLDINGS LIMITED
5DN.SI
Ezra Holdings - Fighting steep odds
- 3Q16 core losses of US$34m were 4% wider q-o-q
- Triyards margins also under pressure
- Subsea JV orderbook receives some boost
No turnaround in sight.
- We downgrade our call to Fully Valued as we do not see Ezra’s balance sheet improving despite various divestment initiatives, as negative headwinds continue to affect its subsea and OSV businesses, which will continue to weaken the equity base.
- The subsea JV – EMAS-Chiyoda Subsea – is still operating below breakeven levels, while the OSV demand-supply situation has worsened over the past few quarters with fleet utilisation at barely 50%.
- While Ezra has secured waivers for technical covenant breaches, the focus will remain on keeping afloat.
3Q16 results show no promise.
- Stripping out one-off losses, including a US$180m loss on disposal of its stake in the subsea business, Ezra reported a core net loss of US$34m for the quarter, slightly higher than 2Q16’s core losses of US$32m.
- Triyards was the only profitable segment on a net level, but its gross margins have eroded from construction of new types of lower-margin vessels as the company diversifies its product offerings.
- Meanwhile EMAS-Chiyoda Subsea has boosted its orderbook but profitability is likely to remain an issue. The OSV business also remains in a gross loss position on low utilisation and dayrates.
Earnings forecast to remain depressed.
- We now expect higher net losses of US$131m/US$93m in FY16/17 (compared to losses of US$115m/US$93m as we factor in lower than expected profitability at the OSV division YTD in FY16.
Valuation:
- We believe the challenging fundamentals and lack of positive sentiment on the stock will keep exerting downside pressure.
- We downgrade our call on the stock to Fully Valued with a revised TP of S$0.06 based on a SOTP methodology.
Key Risks to Our View:
- Substantial subsea order wins in the near term could provide positive catalysts for the stock.
- Alternatively, if oil prices jump sharply to US$60/bbl level and beyond, we could see its share price moving upwards in tandum.
Suvro SARKAR
DBS Vickers
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http://www.dbsvickers.com/
2016-07-18
DBS Vickers
SGX Stock
Analyst Report
0.06
Down
0.11
