• OSV most challenging
• Exploring fundraising
• May see more asset sales

Soft 2QFY15 results

Ezra Holdings reported a 1% YoY fall in revenue to US$302.0m but saw a 99% fall in net profit to US$138k in 2QFY15. We do note, however, that 2QFY14 was boosted by a US$16.6m share of gain from the disposal of Lewek Champion by EOC. On a recurring income basis, we estimate a net loss of about US$8m in 2QFY15 vs. net profit of US$3m a year ago.

Offshore support – most challenging segment

In the Offshore Support segment, weakness in shallow water PSVs and AHTS vessels continued to persist; overall vessel utilisation was about 78-80% in the quarter. Management deems this segment to be the most challenging going forward, as charterers now focus on utilisation levels rather than on charter rates, which are down about 20-35% vs. a year ago. Given such a backdrop, we believe customers of the OSV division are likely to seek downward revisions in charter rates.

Subsea – group sees continued demand

As for the subsea segment, management is still optimistic about this segment’s growth to the group, as it views its assets as key enablers that will see continued demand, unlike mid-tier assets in the market that have been badly hit. However, given the competitive environment, we believe there is likely to be pricing pressure which would affect new tender awards.

Seeking to deleverage, exploring fundraising

On the group level, with the completion of Lewek Constellation, Ezra has come to the end of its subsea capex cycle. As such, it will seek to deleverage and focus on free cash flow generation, with net gearing to peak at its current 1.15x. We also expect more asset sales, especially of non-core assets. According to Reuters, the group is also exploring fundraising options to refinance debt, and this includes equity, equity-linked solutions. Meanwhile as we switch to a SOTP-based valuation from our previous P/B valuation to take into account the group’s various entities, our fair value estimate slips from S$0.60 to S$0.47. Maintain HOLD.

Source: OCBC Research - 9 Apr 2015