• Weak 3QFY15
• Adjusting estimates lower
• FY16 may also be lacklustre

Soft 3QFY15 results

Ezra Holdings reported a 3% YoY drop in revenue to US$390.7m and a 30% fall in gross profit to US$45.6m in 3QFY15. Operating profit fell 81% to US$3.7m, leading the firm to sustain a net loss of US$3.0m in the quarter. Excluding one-off items such as loss on derivatives, we estimate core PATMI to be about US$4.3m. Results were below expectations; 9MFY15 revenue and net profit met 66% and 65% of our expectations, respectively. Gross profit margin in the quarter was low at 11.7% vs. 16.3% in 3QFY14 and 13.6% in 2QFY15.

Challenging operating environment

Management expects the operating environment of the subsea division to remain challenging, and that the operating performance of this segment would decline in 2HFY15 vs. 2HFY14. This is due to the delay in certain projects and slowdown in project wins while fixed costs continue to be incurred. The offshore support and production services segment is also likely to experience lower charter rates and/or decreased vessel utilisation levels. In 3QFY15, utilisation level of the OSV segment was 74%, of which the lowest was seen in the PSV sub-segment at 55-60%; the larger AHTS sub-segment saw better utilisation levels.

FY15 and FY16 likely to be lacklustre years

From a contract wins point of view, FY16 could see an uptick in new project awards, should market sentiment recover. However, from a financial standpoint, FY15 and FY16 may be lacklustre years, as time will be needed to execute any newly secured contracts. Time may also be needed for the group to build up its subsea division, compared to its more established competitors, though much has been achieved within this short span of five years.

Maintain HOLD

With the rights issue going as planned, we account for the larger share base in our estimates. After lowering our earnings estimates to account for the dimmer outlook of the industry and switching our methodology to a simple book valuation, our fair value estimate falls to S$0.16 (based on 0.35 FY15/16F NTA to account for the group’s low ROE and peers’ valuations). Maintain HOLD.

Source: OCBC Research - 13 Jul 2015