• Year of restructuring
• Take a more cautious view
• Only for aggressive investors

Poor share price performance YTD

The share price of Ezra Holdings has dropped by about 30% since the start of Sep, and has lost almost half of its value YTD. Looking back, we had a Sell rating on the stock in the beginning of the year, after which the share price fell by about 30%. After an upgrade to HOLD in Apr, the stock has been pretty much range-bound before being hit by the recent oil price volatility. With the end of our blackout period on the stock and its related entities due to the listing of subsidiary EMAS Offshore, we now review our rating on Ezra Holdings.

One of the hardest hit from recent oil price drop

In terms of share price performance, the company has been one of the hardest hit with the recent oil price fall, as it has a more deepwater-focused fleet. Its subsea segment also has exposure to the North Sea and there have been concerns about delays in project awards as well. As for the company’s operations, however, we note that FY14 (year end Aug) has actually been a better year in terms of core earnings (~US$29m vs. core net loss of ~US$37m in FY13).

Risks tilted more to the downside

Looking ahead, we believe that the company has to demonstrate sustained utilisation levels in the OSV division after having repair and maintenance issues for some vessels in 1HFY14, as well as continued order wins for the subsea segment, especially in a lower oil price environment. Investors may also be cautious about oil companies with high net gearing, given the recent drop in risk appetite in the SGD-denominated bond market. For Ezra, its net gearing stood at 1.2x as at end FY14, but the group expects it to fall to around 0.7-0.8x by end FY15. Taking into account the lower P/B multiples that peers are trading at (Subsea 7 and McDermott at 0.7-0.8x, Swiber at 0.3x and POSH 0.8x), we use a 0.5x FY15F P/B for Ezra, resulting in a fair value estimate of S$0.77. Maintain HOLD.

Source: OCBC Research - 26 Nov 2014