Thursday, 25 June 2015

Ezra Holdings

UOBKayhian on 25 June 2015

FY15F PE (x): 18.4
FY16F PE (x): 20.3

Ezra’s cash call has lifted its refinancing risks. However, its high gearing of 1.27x amidst the current industry downturn and a high cost structure make the situation challenging. A possible sale & leaseback of the Lewek Constellation would unlock US$200m in equity to bolster internal liquidity. On the flipside, the high vessel dayrate will add to cost burden. Subsea outlook has deteriorated. We cut FY15/FY16 earnings estimates by 35- 47%. Maintain HOLD with cum-rights target price of S$0.31. Lowering FY16-17 earnings forecasts on lower subsea turnover. We adjust our earnings to account for lower activity in Ezra’s subsea segment. We now project a subsea turnover of US$800m each for FY16 and FY17, from S$1.3b and S$1.5b for 2016 and 2017 previously. We maintain our projected turnover of US$1b for 2015. Current subsea orderbook is about US$1b. We cut our net profit forecasts for FY16 and FY17 to US$36m and US$35m from US$55m and US$66m. Our net profit forecast for FY15 remains the same at US$40m. Maintain HOLD with revised cum-rights target price of S$0.31 (ex-all S$0.175). We revise our P/B valuation yardstick to 0.3x 2016F P/B from 0.5x 2016F previously given the marked deterioration of the subsea industry in the last quarter. This translates to a revised cum-rights target price of S$0.31 (ex-all S$0.175) from S$0.54 previously. Ezra’s 1-year forward P/B bottomed at 0.26x during the Great Recession in 2008/09 which saw Brent oil price falling below US$40/bbl. The OSV-owner segment bottomed at 1-year forward P/B of 0.5x during the crisis.

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