Ezra Holdings Ltd

UOBKayhian on 12 Jan 2015

FY15F PE (x): 8.0
FY16F PE (x): 7.0

Below expectations. Ezra reported net profit of US$54.4m for 1QFY15. Excluding a net
exceptional gain, Ezra would have reported a net loss of US$0.4m (excluding a large
forex gain of US$9.4m, the net loss would have been US$8.9m). Revenue declined 6%
yoy and gross margin was lower at 12.2% vs 14.9% previously.
Still vulnerable, but Ezra is pushing ahead. Ezra said existing firmed OSV and subsea
contracts are not affected by the lower oil prices. Thus far, no customer has approached
Ezra for renegotiation or cancellation, but it is logical to expect OSV rates to soften in
view of the recent collapse in oil prices. However, Ezra does not expect subsea margins
to contract as they have already come off. The industry’s average gross margins are
20% and 15% for EPICI and TNI jobs respectively. Five years ago, margins were closer
to 30%. Industry subsea margins are expected to stay firm at an acceptable level. The
subsea services industry is seeing margin discipline among service providers.
Maintain HOLD with a lowered target price of S$0.70 which is pegged at 0.5x 2015F P/B
vs 0.7x previously. Our recommended entry price is S$0.45. With the current NAV at
US$1.39 (S$1.85), Ezra is trading at a very low P/B valuation of 0.31x which is close to
the trough P/B valuation of 0.25x in 2009 for Singapore oilfield services stocks with a
high net gearing level. We maintain our HOLD call. However, Ezra is in a vulnerable
situation in view of its paper-thin margins and high gearing. An earnest turnaround in
share price can only come about when Emas AMC and EOL deliver strong earnings
improvement.